SoFi Technologies (SOFI) provides a portfolio of financial services. It has three primary business segments that include:
- Lending: The business offers lending and financial services products that allow users to borrow, save, spend, and invest money. It also offers personal loans, home loans, and student loans.
- Technology Platform: SoFi operates Galileo, which is a tech platform that provides services to enterprise clients, such as brokerage services. The business also includes Technisys, which is a core banking platform.
- Financial Services: The business provides services such as checking and savings accounts, debit cards, and cash management products.
Valued at a market cap of $7.59 billion, SoFi stock currently trades 71% below all-time highs. However, at least one Wall Street analyst expects the fintech stock to double in the next 12 months. Let’s see why.
High Hopes for SoFi Stock
The Street-high price target for SoFi stock right now belongs to Andrew Jeffrey of Truist Securities, who has a “Buy” rating and a $16 price target on the stock. Jeffrey upped his target from $11 after SoFi's latest quarterly earnings.
"SoFi is changing the way consumers bank, and it is doing it faster than most appreciate," Jeffrey wrote in a note to clients accompanying the target hike. "This structural change, in which the [company] is accelerating deposit share, automating loan decisioning, focusing on members' holistic financial health and providing a comprehensive suite of financial products and solutions is new. Legacy banks do not and cannot replicate this model, in our view."
That $16 price target implies expected upside of more than 100% from current levels.
Similarly upbeat is Jefferies analyst John Hecht, who stated in a Sept. 19 note that SoFi continues to grow at a robust pace and should benefit as the company scales into multiple “expansionary initiatives.” Hecht reiterated his own “Buy” recommendation on SoFi stock and has a price target of $15, indicating an upside potential of nearly 90%.
On the charts, SOFI is up more than 71% year-to-date, but the stock has pulled back about 31% since the start of August.
What's Next as Student Loans Come Due
Typically, rising interest rates act as a headwind for companies in the lending sector. As the cost of debt rises, the lending environment deteriorates - resulting in lower revenue across segments. In the last 18 months, multiple global central banks have hiked interest rates to tame inflation, which touched multi-year highs in 2022.
Despite a challenging macro environment, SoFi continues to grow at an enviable pace. The company increased revenue from $442.6 million in 2019 to $1.57 billion in 2022.
More recently, SoFi added 584,000 members in the June quarter, and ended Q2 with a total of 6.24 million members. Comparatively, at the end of Q2 of 2020, SoFi had just 1.2 million members. It also added 847,000 new products in the quarter, an increase of 43% year over year.
Due to that rapidly expanding user base, SoFi increased revenue by 37% year over year to $489 million. It reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $77 million, indicating a healthy margin of 16%. Its EBITDA margin improved by 500 basis points compared to the year-ago quarter.
The company now expects to generate sales between $1.02 billion and $1.08 billion in the second half of 2023. Its EBITDA is forecast at $185 million, indicating a margin of 18%.
SoFi remains unprofitable, but forecasts call for its adjusted losses to narrow from $0.40 per share in 2022 to $0.20 per share in 2023. It is forecast to turn profitable in 2024 with adjusted earnings of $0.03 per share.
Looking ahead, according to Jefferies' Hecht, the reintroduction of student loan repayments, coupled with SoFi’s improving margins, robust credit profile, and a banking charter, makes it a compelling investment at the current valuation. Priced at 3.75x forward sales, SoFi stock is not too expensive.
What's the Consensus Forecast for SoFi Stock?
Out of the 16 analysts tracking SoFi stock, five recommend “strong buy,” seven recommend “hold,” one recommends “moderate sell,” and three recommend “strong sell.”
Despite the positive catalyst of loan repayments starting back up, most analysts have lower expectations for SOFI than those at Jefferies and Truist. The average price target for SoFi stock is $10.21, which is 29% above current trading prices.
