Financial technology (fintech) stocks like Sofi (NASDAQ:SOFI) are trendy. The digitization process of financial transactions is in full bloom. This is not a fad, so it’s a concept with a long runway ahead of it. This is just one of the reasons why SOFI stock is one to own for the long term.
The company is relatively new to Wall Street, but it’s been around since 2011. So far, SoFi has been executing well, but investors have not shown appreciation for it lately. It is up more than 20% since it went public, but it’s underperforming relative to similar stocks. SOFI stock is more than 40% off its high watermark.
On Sept. 10, Affirm (NASDAQ:AFRM) hogged the headlines after a massive spike on earnings. The company reported on the previous night and investors bought up shares in droves. Just like Affirm, Sofi will have its day, and eventually the stock will gain more respect from investors.
These newcomers have an advantage over old-school credit card companies like Visa (NYSE:V) and MasterCard (NYSE:MA). They are coming to life during a pivotal period in finance. There are few rules, as fintech companies are inventing trends as they go. The lines between market segments are getting blurrier with each innovation.
SOFI Stock Is Still Under the Radar
I like SoFi’s approach to its business — it touches consumers directly, but also has business partnerships. This makes for an exciting mix of possibilities. It can blaze new trails with programs like its collaboration with Samsung.
The company is no longer just about loans, although it offers a slew of products there. Customers can also invest through SoFi, trading assets from traditional stocks to crypto. It even offers business solutions for employers. Clearly the world is SoFi’s oyster, so its future can include even more ventures.
The financial metrics for SOFI stock are too new to serve as guides for trading decisions. Therefore, investors need to do due diligence, which includes leveraging other people’s homework.
According to Yahoo! Finance, there are too few analysts covering the stock. The few that do have an average price target 52% higher than current price. They are clearly upbeat on SOFI’s future prospects.
Additionally, my bullish thesis involves an “Aha!” moment for SoFi sometime in the future. For now, the stock is building a base near $14 per share and showing progress. There are a few technical hurdles as seen in the chart above, but those can turn into catalysts later. I made similar points recently and the action since then proved them to be correct.
SOFI stock is worth holding until more experts discover it. It will have its “Aha!” moments, and that’s when the rewards will come for those who got in early. This will require patience, and perhaps the use of alternative investment vehicles.
Think Differently About Investment Options
Using options is one way to approach SOFI stock, as investors can leave room for error. For example, for about $160, traders can lock their stock price at $17.50 for 100 shares this year. This is one-tenth of the cost of buying the shares outright. A smaller out-of-pocket expense means less risk and easier conviction.
Another way to use options bullishly is to sell puts instead of buying shares. That would require no expense now and creates a credit to open the trade. Then, the investor would immediately be bullish with about a 20% buffer.
There are many alternative possibilities, and of course owning shares for the long term works as well. Modern investors have many sophisticated tools that can make life easier. While markets are at all-time highs, sentiment is on edge. Risk management is as important as ever, and using options can help.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.