Sophie techniques (Nasdaq: SOFI) is a fintech startup aiming to change the way Americans manage their finances. It is leading efforts towards a seamless digital banking experience and has attracted millions of customers.
But after SoFi stock soared in 2023, it's falling this year. Is he in the deal zone now? Could adding it now help investors build a millionaire maker portfolio?
Future Bank
SoFi is a completely digital application Financial services company Which serves its customers through an easy-to-use all-in-one application. It started out strictly as a lending company, but now offers bank accounts, investment tools, and more.
What helps it stand out from other digital banks prevalent today is its focus on students and young professionals. They design their products to be attractive to customers in that demographic, with clear graphics and explanations for people who are new to managing their finances. SoFi takes them by the hand and guides them through setting up their financial lives for the first time.
These customers reward her with strong loyalty. Beyond new customer additions, it benefits from its existing customers adopting more of its products and expanding their relationships with the company.
In short, this is SoFi's growth strategy: attract customers with low prices and an easy-to-use interface; Earn their trust (success demonstrated by high product adoption and direct deposit rates); Expanding scope and increasing profits.
The numbers tell the story. SoFi's net revenue rose 37% year over year in the first quarter to $645 million. It added over 600,000 new members (44% more than were added in the same period the previous year) bringing the total number of members to over 8 million. The total number of products used by these customers rose 38% to nearly 12 million.
It has published generally accepted accounting principles (Generally Accepted Accounting Principles) net income of $88 million, making the first quarter its second straight quarter in the black. (This included a one-time benefit of $59 million from the convertible debt swap, but it was still profitable without it.) Management expects net income for the full year to be approximately $170 million, which would make 2024 the first time it has been profitable on an annual basis. On a full year basis since going public.
Risk versus reward
There are still risks associated with this young and growing company. Previously, its path to continued profitability was a cause for concern. Although it is now profitable and expects to continue doing so, its business is changing, creating instability.
Management is moving to expand the services SoFi offers again. Changes along these lines were key elements of its growth strategy for many years before the start of higher inflation in 2021 and 2022, and that more diversified operation has been a boon for the company. Had it remained a full lender, its business would have been crushed when the Fed raised interest rates to combat this high inflation.
The launch of its diversified businesses has increased revenue and scale, and has served as a hedge for the business against macroeconomic pressures. The flip side of high interest rates on loans is that they now pay higher interest rates on deposits, attracting new customers, and putting dollars into SoFi's coffers.
However, investors were pessimistic about SoFi's lending business. Management expects its lending business to reach 92% to 95% of 2023 levels this year. This contraction will be countered by the growth of the other two sectors – technology platform and financial services. And they're on track to increase to about 50% of total net revenue. The technology platforms sector is expected to grow by about 20% in 2024, while the financial services sector is expected to grow by about 75%.
Additionally, SoFi recently announced a new equity offering. The market does not typically view shareholder dilution very kindly, and while this share sale may not be a huge deal in itself, in the context of other areas of concern, it reinforces the arguments for pessimism about the share price.
Don't miss this opportunity
The good news is that all of these issues are short-term concerns. I don't mean to downplay what could be legitimate concerns, but when evaluated in the context of everything that's going right at SoFi and the tremendous opportunity it presents, for me at least, the negatives pale in comparison to the positives.
When you take into account SoFi's low valuation, this seems like a deal not to be missed. The stock trades at a price-to-sales multiple of 2.8 and a one-year price-to-earnings ratio of 30. Given SoFi's high sales growth and move to sustainable profitability, it looks pretty cheap.
Investors should consider adding SoFi stock to their portfolios for years of gains. For those who invest enough, they can achieve millionaire-maker returns as part of a growth-focused portfolio.
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Jennifer Seibel He has positions at SoFi Technologies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has Disclosure policy.
Is SoFi Technologies a Millionaire Maker Stock? Originally published by The Motley Fool
