Growth stocks tend to be the high-octane fuel for an investment portfolio. A strong portfolio consists of a mix of shares, but the composition of the shares will be different for each portfolio and will be determined by the risk profile of the investor. Some investors, especially older investors and those who already have a large portfolio, will gravitate toward safe stocks and passive income. Investors who are just starting out or looking to grow their positions can focus on growth stocks. If that fits your profile and you’re looking for a great value growth stock, check it out SoFi technologies (NASDAQ: SOFI).
Partly a growth stock
SoFi is a fully digital bank that is growing by leaps and bounds. Customer count increased 41% year over year to 8.8 million in the second quarter, and adjusted net sales increased 22% year-over-year. It’s also becoming profitable, and with $17 million in net income, this was the third consecutive quarter of positive net income.
While the credit segment offers its core products, the company has developed two other segments that diversify its overall business. This does a number of things: it brings in new customers, generates greater engagement and revenue, and reduces the risk of having all your eggs in one basket.
This has become clear enough in recent quarters. While the credit segment is largely stagnant, the financial services and technology platform segments have been growing at a rapid pace. The financial services segment includes all non-lending services such as bank accounts and investments. Tech Platform is a white label segment that provides financial services infrastructure for business-to-business customers. Chief Executive Officer Anthony Noto likes to call it the Amazon Web Services (AWS) of the financial sector.
In the second quarter, financial services revenues rose 80% year over year and the segment was responsible for 91% of new products. The technology platform increased by 9% last year. Together, these segments accounted for 45% of adjusted net sales in the quarter, compared to 38% last year.
The credit segment is under pressure due to high interest rates. Lending revenues rose just 3% year over year in the second quarter, and loan contribution profits rose just 8% to $198 million.
Profits are still rising in the other segments, but lending is responsible for the majority of the company’s net profit. Financial services profits fell from a loss of $4 million last year to a positive $55 million this year, and profits from the technology platform contribution amounted to $31 million.
Partly a bank share
The reality is that SoFi won’t be a growth stock forever. While it is a fintech stock and the technology it uses gives it an edge over traditional banks, it is essentially a banking stock. Its core products are credit products and financial services, and ultimately SoFi’s business should settle into a similar model as other banks. After all, even traditional banks now all have a digital presence; SoFi’s activities are not significantly different, even though it attracts a certain target group of young professionals.
And certain types of investors, like Warren Buffett, like bank stocks. Once SoFi has a solid foundation, it should offer the stability of a bank stock.
Why have SoFi shares fallen?
Investors are concerned about SoFi’s lending segment. However much the other segments contribute, lending is still the core activity. SoFi stock is down about 67% from its all-time high.
SoFi shares started rising early this year when the environment looked more favorable for rate cuts, and are up 35% in the past three months. As its other businesses grow and contribute more to the total, and lending recovers with lower interest rates, SoFi’s stock could explode.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil holds positions in SoFi Technologies. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
1 Magnificent Growth Stock Down 67% to Buy and Hold Forever was originally published by The Motley Fool
