The S&P500 is on fire, consistently hitting record highs and showing strong performance over the past two years. But when it comes to standout stocks, SoFi technologies(NASDAQ: SOFI) has increased by 261% since the beginning of 2023.
SoFi’s ability to expand its customer base and grow revenue has set the company apart. After reporting its first quarterly net income a year ago, the fintech has maintained its profitability and delivered solid profits for several quarters in a row.
SoFi is reaping the benefits of higher interest rates, which have played a crucial role in accelerating customer growth. With multiple opportunities for further expansion, the company is well positioned for continued success.
However, with the stock up significantly this year, potential investors may be hesitant due to its high valuation. Let’s take a closer look at SoFi to determine whether it’s a buy, hold, or sell at the current price.
In recent years, SoFi has transformed from a student loan refinancing company to a financial services powerhouse. This crucial shift began during the pandemic, when student loan forbearance made the original bread-and-butter business significantly less attractive.
SoFi expanded significantly into personal loans to meet growing demand. But the real game changer came in 2022 when SoFi acquired Golden Pacific Bancorp. This acquisition provided SoFi with a deposit and lending base while giving it the benefits of a traditional bank.
With a bank charter, SoFi has attracted countless customers by offering annual returns of up to 4.5% on their deposits. As a result, SoFi customer base growth exploded and deposits now total $24.4 billion.
The acquisition also means SoFi can retain more of its loans, a significant advantage in the recent high interest rate environment. The move allowed the company’s net interest income to skyrocket to $431 million in its most recent quarterly results.
SOFI Total Deposits (Quarterly) data by YCharts
Additionally, the banking charter has allowed SoFi to build out its technology infrastructure for non-bank entities. The fintech has made substantial investments in platforms such as Galileo and Technisys, transforming the fintech landscape.
Through Galileo, SoFi provides the essential back-end services that other fintech companies rely on. At the same time, Technisys helps support multiple products simultaneously, runs in the cloud and enables banks to process and analyze data in real time. With this technology stack, SoFi aims to be the Amazon Web Services (AWS) of the financial industry.
SoFi has expanded rapidly and is performing extremely well, which is why its stock has risen so much. Investors who are bullish on this could buy the stock even after a significant rise today.
Investor concerns this year have focused on SoFi’s lending business. As noted above, the fintech has dramatically expanded its personal lending business. Earlier this year, CEO Anthony Noto recently hinted at a more cautious outlook amid ongoing macroeconomic uncertainty.
SoFi has a $16.7 billion personal loan portfolio, making credit quality an important aspect of its business. In the third quarter, the company reported $147 million in personal loan charges, resulting in a net charge-off rate (NCO) of 3.52%. While this represents a slight increase from last year’s NCO rate of 3.44%, it shows an improvement from the previous quarter’s 3.84%.
Furthermore, SoFi shares have seen a significant rise and are trading at a high valuation. The stock is currently priced at 163 times earnings and 4.3 times tangible book value, an exorbitant figure compared to traditional bank stocks. Even taking into account next year’s expected results, the stock is priced at 68 times its expected earnings.
SOFI PE ratio data according to YCharts
While SoFi’s loan portfolio continues to show resilience, the rapid rise in its stock price could be a signal that it’s time to take some chips off the table.
SoFi has had several profitable quarters and continues to grow its customer base and profits. Its implementation has yielded impressive results for investors.
However, the stock has seen a significant rise and is trading at a premium valuation. While I’m optimistic about SoFi’s long-term growth potential, this increased valuation comes with greater volatility, both up and down.
After the recent run-up, investors may find this a good time to reduce their position and take some profits off the table. That said, I’m still pleased with the long-term prospects for SoFi over the next decade, so I’m giving it a hold rating today.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
SoFi Technologies: Buy, Sell or Hold? was originally published by The Motley Fool
