In my last two articles, I called this fintech stock a buy. First, I said it was a buy when it traded for around $21 in early June. Then, I said it was a buy a second time in early July at around $16.50.
I think SOFI is now the latter, not the former. And, as Cramer says, CEO Anthony Noto is a better leader than the fintech’s share price indicates. So, he will turn it around.
But could something drive SOFI lower to $10? Or, what could push it higher to $20? I’ll answer both of these questions.
SOFI Stock Has $20 Written All Over It
I take no comfort knowing that the folks over at Reddit’s r/WallStreetBets consider SOFI stock to be of immense interest. Unfortunately, most of the popular Reddit stocks aren’t worth the paper their 10-Ks are written on. However, in this case, I have to agree with the increased attention given to SOFI stock. At $15 and change, it’s too darn cheap.
Back in June, I wrote the following: “I do think that CEO Anthony Noto has a shot at transforming the company into a financial services powerhouse. […] I said that IPOE — SOFI’s predecessor stock — was a reasonably priced special purpose acquisition company (SPAC).” I also explained that SoFi was expected to hit $1 billion in revenue in 2021. This projection, alongside the company’s leadership, are reasons to like the stock.
Furthermore, InvestorPlace contributor Dana Blankenhorn recently discussed SoFi’s acquisition of Galileo, the application program interfaces (API) business it bought for $1.2 billion last April. As he points out, Noto got Galileo a top-notch fintech innovator to run the division — former Alphabet (NASDAQ:GOOGL) executive Derek White. Nabbing such exceptional talent is another reason to like Noto’s leadership style.
Before joining Google, White was the Chief Digital Officer of U.S. Bank (NYSE:USB). He clearly knows a thing or two about digital financial services. And, as Noto stated in the press release, White is absolutely the perfect hire to run that part of the business.
I believe Noto will continue to take on quality people who’ve demonstrated time and again that they get the job done. White could have gotten almost any job he wanted in fintech. Instead, he chose Galileo and SoFi. That speaks volumes.
Still, It Could Keep Falling
SOFI stock traded at or near $25 on two occasions in 2021. Additionally, on both occasions, it retreated back to the mid-teens. That’s a sign that investors don’t have a lot of confidence in a higher share price for this stock.
In mid-July, InvestorPlace contributor Larry Ramer wrote that SoFi is ostensibly a lender and should be valued as such. Not as a tech stock. His feeling is that the company doesn’t offer anything traditional banks don’t already offer.
He’s not wrong. As Dana Blankenhorn pointed out, the company generates 83% of its revenue from loans. Further, Ramer considers Galileo to be a white-label technology provider rather than a true financial innovator.
However, the problem with this perspective is that it undervalues the technology itself. Many of Galileo’s products save customers time and money. That in itself can be priceless — and help bolster the case for SOFI stock.
What to Do with SOFI Stock
For our purposes, though, let’s assume that SoFi should be valued as a bank rather than a tech company. Ramer’s not the only one who feels this way, after all.
In 2021, the company is expected to generate $1 billion in revenue. With that in mind, Paypal (NASDAQ:PYPL) is a mature fintech. It trades at 15.6 times sales. Additionally, SIVB Financial (NASDAQ:SIVB) is an innovative bank. It trades at 5.73 times sales.
If you value SoFi at 5.73 times sales, based on 2021 estimates, it’s worth a little less than $6 billion, or $7.06 per share (based on 811 million shares outstanding as of May 28). On the other hand, if you value SoFi at 15.6 times sales, it’s worth $19.23 per share.
If we split the difference, we’re talking $13.14 a share. For me, that’s about as far as I think it could fall. So, Cramer’s not wrong to suggest buying the stock at $14. I think SOFI stock will hit $20 before the end of 2021.
All in all, long-term, this stock is definitely a buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.