Identifying quality stocks and buying shares of fundamentally strong companies at regular intervals is a solid strategy for creating long-term wealth. As it's virtually impossible to time the equity markets with any kind of accuracy, dollar-cost averaging helps you to benefit from market volatility and generate outsized gains over time.
The bear market in 2022 drove the valuations of several growth stocks significantly lower, making these names suddenly more attractive to value investors. One such stock is SoFi Technologies (SOFI), which is now trading 66% below its January 2021 all-time highs - valuing the company at a market cap of $7.82 billion.
There are several reasons to buy the dip in this fintech stock at current levels. Let's take a look.
Why SoFi Technologies is a Buy
SoFi Technologies offers a fintech platform through its Lending and Financial Services products, where users can borrow, save, spend, and invest their money. Last February, SoFi closed its bank merger with Golden Pacific and became a bank holding company. Operating as a national bank allows SoFi to provide customers with competitive options and unlock additional revenue streams.
For example, a bank license lowers the cost of asset-backed financing compared to alternative sources of funding. It also allows SoFi to lower interest rates on loans and offer higher rates on deposits. Additionally, the bank license increases SoFi’s flexibility to hold loans on its balance sheet for longer periods, helps earn interest on these loans for longer periods, and supports origination of volume growth by offering alternate financing options.
SoFi’s portfolio of products is designed to appeal to corporate clients. It has successfully expanded its base of enterprise customers following the acquisition of Galileo in 2020 and the merger with Technisys last year. Galileo provides technology platform services, while Technisys allowed SoFi to add a cloud-native digital and core banking platform. These acquisitions should enable SoFi to gain traction in other markets and improve customer engagement rates.
In Q2 of 2023, SoFi increased its customer count by 44% to 6.2 million, adding $2.7 billion in deposits. Its total deposits now stand at $12.7 billion as its savings account provides an enticing interest rate of 4.5%.
SoFi emphasizes that around 90% of these deposits are from customers who deposit their paychecks, resulting in higher “stickiness.” Moreover, 98% of its account balances are completely insured by the FDIC, which should boost customer confidence given the regional banking crisis that's unfolded this year.
Its rapidly expanding customer base enabled SoFi to increase sales by 40% year over year to $970 million in the first two quarters of 2023. In this period, the company narrowed its net losses from $206 million to $82 million.
As student loan payments are set to resume in September, investors can expect SoFi's top line to accelerate further in the near term, while allowing for margin expansion. In the first half of 2023, SoFi originated $900 million in student loans, while $3.7 billion of personal loans were approved in Q2.
What is the Target Price for SoFi Stock?
Analysts expect SoFi stock to increase revenue by 30% to $2 billion in 2023 and by 26% to $2.53 billion in 2024. Comparatively, its bottom line losses are anticipated to narrow from $0.40 per share in 2022 to $0.21 per share in 2023. Wall Street expects SoFi to turn profitable in 2024, with adjusted earnings per share of $0.02.
SoFi stock is priced at 4x forward sales, which is quite reasonable. Out of the 16 analysts tracking SoFi stock, five recommend a “strong buy,” seven recommend “hold,” 1 recommends a “moderate sell,” and three recommend a “strong sell.”
The average 12-month price target for SoFi stock is $9.86, which is 16% above current trading levels.
Given the solid operating results, share price outperformance, and reasonable valuation, SoFi stock looks like a quality name to buy at current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
