With a market capitalization of nearly $300 billion and total assets of $3.3 trillion, bank of America is undoubtedly one of the largest financial institutions out there. It is also known to be one of Warren Buffett’s leaders Berkshire Hathaway‘s top positions.
That might prompt you to give this bank stock some extra attention, or even buy shares. But if you continue reading, you might soon forget about Bank of America and strongly consider buying the beautiful sofa instead bank stock shown below.
Strong growth trends
Capitalism creates (and requires) constant innovation. Perhaps no company in the banking sector has innovated like this SoFi technologies (NASDAQ: SOFI) has. This company not only focused on refinancing student loans, but now became a full-fledged powerhouse in the field of digital banking. SoFi offers checking and savings accounts, a brokerage service, credit and debit cards, and various lending products.
The company has grown rapidly over the years. It has 7.5 million customers, up from less than 1 million four years ago. This has resulted in sales increasing by 375% between 2019 and 2023. SoFi is clearly doing a good job of specifically addressing the needs of its user base and attracting a higher-income and digitally savvy customer base.
Even in a higher interest rate environment, which should pose headwinds for any bank, SoFi is reporting tremendous growth, which is very encouraging. Turnover increased by 35% last year. Bank of America, on the other hand, saw its turnover fall by 2% in the just ended first quarter.
Investors can be optimistic that SoFi’s growth will continue for a long time. Management expects sales to grow 20% to 25% annually over the next three years. Should the company successfully penetrate international markets, even remotely, as it has done in the US, its expansive runway is even greater.
Looking at profitability
Bank of America deserves credit because it has a much longer operating history than SoFi. This means it has built a core competency when it comes to profitably running a huge financial institution. Consistent profits help generate dividends and share buybacks, which can be attractive to some investors, especially those who want to own proven companies that return money to shareholders.
Because SoFi has prioritized growth above all else, it has not been profitable throughout its history. Like any technology or software company, the idea is to invest aggressively in building out products and attracting more users. But things change when it comes to the bottom line.
In the last three months of 2023, SoFi reported its first-ever quarterly profit as a publicly traded company. profit per share (EPS) of $0.02 on GAAP income of $48 million. This was small compared to its $2.1 billion in revenue. However, executives offered hints about what the future might bring.
SoFi bulls have a lot to be excited about. That’s because management believes SoFi will register earnings per share between $0.55 and $0.80 in 2026. After that, earnings per share are expected to grow by 20% to 25% per year.
Of course, it is always wise to take these estimates with a grain of salt. It still shows you that SoFi is likely turning a financial corner as it starts to better leverage its operating costs.
SoFi stocks have return potential
I can understand why investors wanting exposure to the banking sector would have their eyes on Bank of America. It is a sustainable company that has stood the test of time. It also helps that Buffett is a top shareholder.
But if you want to earn market-beating returns over the long term, SoFi is the clear winner. A combination of strong revenue growth and accelerating profits creates the perfect recipe for a winning investment. If you think this is a higher risk stock, it might be a good idea to initiate a smaller position in your portfolio.
Should You Invest $1,000 in SoFi Technologies Now?
Consider the following before purchasing shares in SoFi Technologies:
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Forget Bank of America; Buy This Beautiful Bank Stock Instead was originally published by The Motley Fool
