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Is SoFi Stock a Buy?

SoFi Technologies (NASDAQ: SOFI) has done an excellent job of expanding its customer base and growing sales. However, the country has suffered sluggish credit growth in the high interest rate environment, leading to investor skepticism about its short-term prospects. As a result, the stock remains 62% below its 2021 all-time high.

However, the company has identified multiple levers for growth and is seeing encouraging progress in its non-consumer businesses. If you’re considering buying SoFi today, here’s what you need to know.

In its early days, SoFi focused on helping people refinance their student loans. In 2020, the pandemic and policies around student loan forbearance forced SoFi to reevaluate its business. One area that helped drive continued growth was personal lending. From 2020 to 2023, SoFi’s personal loan volume grew from $2.6 billion to $13.8 billion.

The higher interest rate environment of recent years has been a double-edged sword for SoFi. On the one hand, consumers have had to contend with higher interest rates, which could make it harder for them to pay off their debts.

In the second quarter, SoFi wrote off $151.8 million in personal loans, yielding a 3.84% repayment rate on its $15.9 billion personal loan portfolio. This is up from 2.94% a year ago and is a metric that investors have been watching closely. Over the past few years, charge-offs have increased across the banking industry, which many attribute to normalizing conditions rather than systemic consumer weakness.

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Additionally, SoFi expects lending segment revenues to decline 5% to 8% compared to last year. CEO Anthony Noto told investors during the first quarter that the fintech is “taking a more conservative approach in light of macroeconomic uncertainty.”

Conversely, higher interest rates have allowed SoFi to grow its net interest income significantly. A major reason for this was the acquisition of Golden Pacific Bancorp in 2022, which allowed SoFi to maintain deposits and therefore take on more loans on its books. Since the bank’s acquisition, total deposits have grown to nearly $23 billion, thanks to its high-yield savings accounts that offer annual returns of up to 4.5%.

Last year, SoFi brought in nearly $1.3 billion in net interest income, up more than 400% from 2021. This solid growth continued in the first half of this year, with net interest income increasing 55% to $815 million.

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