Every investor is looking for the next thing Apple or Nvidia. Even putting a small amount of money into one of these stocks when they were just starting out would give investors amazing results today.
That’s why it’s so important to have a diversified portfolio of excellent stocks. You only need one to hit the ground running to create incredible market success, but you don’t know which one it will be.
SoFi technologies (NASDAQ: SOFI) is a young fintech superstar. Can SoFi Stocks Set You Up for Life?
SoFi is an online bank and part of a wave of fully online banks that are challenging the traditional big banks. CEO Anthony Noto has an ambitious goal for SoFi to become a top 10 bank, and if the bank continues to grow as it is now, that could eventually happen.
Customers are signing up at a rapid pace. There were 756,000 new member signups in the third quarter for a total of 9.3 million, and 1.1 million new products for a total of 13.6 million.
As customers discover and enjoy the platform, they sign up for more products, which is another growth driver. SoFi was originally a lending cooperative, but has grown to include a wide range of financial services products. It benefits from this strategy in many ways, from lowering risk to increasing engagement and generating higher sales.
In the third quarter, sales increased 30% year-on-year. Another benefit of the expansion strategy is that it drives scale, and SoFi has reported positive net income for four consecutive quarters. It is indicative to continue this in the first quarter and into 2025.
As great as this all sounds and is, there are still risks. SoFi is still young and largely unproven, although it is doing a great job of proving itself. Four quarters of profitability is a sign that it’s a viable company, but it doesn’t have the same decades of existence that make some bank stocks incredibly stable and reliable.
Some of the good performance is due to external factors, and investors should not ignore that. As a financial stock, SoFi’s activities are heavily influenced by the macroeconomy and interest rates. Higher interest rates have negatively affected many banks in recent years, including SoFi.
Although the consolidated results are strong, the credit segment is under pressure. Revenues fell at one point this year and management warned that full-year lending revenues would be lower year over year. With interest rates falling, results have been better than expected and management has revised its guidance, much to the relief of investors.
That’s why the expanded platform has been even more important for SoFi. Even though lending was precarious, you wouldn’t know it from seeing the overall results.
With interest rates falling and SoFi continuing to bring new members on board across different products, it is well positioned to continue to grow and its stock to continue to rise.
Another factor to consider is SoFi’s valuation. At its low point earlier this year, SoFi stock looked like a bargain. But now that it is rising again, so is its value. At the time of writing, SoFi stock is trading at a one-year price-to-earnings ratio of 65. That’s not cheap, but for a growth stock it could be a justified premium. It trades at a price-to-book ratio of 2.7. That is also not cheap compared to other banks, but other banks are not growing as fast as SoFi. So while I can’t call SoFi a bargain at this price, I wouldn’t say it’s overvalued either.
If SoFi continues to grow at double digits, the stock should continue to rise for the foreseeable future. Management expects growth of 22% to 23% in 2024, and Wall Street expects sales to rise another 17% in 2025. As net income rises, valuation should return to a more reasonable level, and shareholders could enjoy years of compounding stock gains.
Investing enough money in SoFi stocks can be a strong part of a well-diversified portfolio and help you get off to a great start in life. I don’t recommend putting all your eggs in one basket, but I do recommend buying SoFi stock and holding it for many years.
Consider the following before purchasing shares in SoFi Technologies:
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Jennifer Saibil holds positions at Apple and SoFi Technologies. The Motley Fool has and recommends positions in Apple and Nvidia. The Motley Fool has a disclosure policy.
Can buying SoFi stock today be a lifetime guarantee? was originally published by The Motley Fool
