With several fintech disruptors looking to go public in the days and weeks ahead, investors who own SoFi Technologies (NASDAQ:SOFI) stock ought to be excited about the news.
From where I sit, that’s a green light for SOFI stock to move higher.
Here’s why.
In the past month alone, SoFi’s share price is up almost 40%. SOFI stock appeared stuck in neutral in early October, trading between $14 and $16 for nearly three months.
What awoke the beast? For starters, it got an overweight rating and $25 target price on Oct. 11 from Morgan Stanley analyst Betsy Graseck, right around the median target for the seven analysts covering the stock.
In my last article about the fintech disruptor on Oct. 20, I mentioned the analyst’s comments on the company. In the near term, I believe it will test $25 for the third time in 2021. Long-term, I think SOFI is an excellent buy-and-hold investment.
At this point, if you’ve owned SOFI for the entire year, you’ve been on a major roller-coaster ride. However, if you’re patient and continue to buy whenever it drifts back into the mid to high teens, I think you’ve got a shot at a 10 or 20-bagger over the next decade.
But let’s get back to the gist of the article’s headline. Several fintech IPOs are looking to go public in the near term. I think that’s excellent news for SOFI because it suggests there remains a big appetite by investors for fintech disruptors of all kinds.
SoFi happens to be one of the better ones, in my opinion.
The Fintech IPOs On Deck
Nu Holdings filed its F-1 on Nov. 1. It operates Nubank, one of the world’s largest digital banking platforms. Founded in 2013 in Brazil, the company estimates that the Latin American financial services market will grow to $1 trillion in 2021. It has 48.1 million customers in Brazil, Mexico, and Columbia. Euromoney considers it Latin America’s best bank.
Of course, it doesn’t make money.
In the nine months ended Sept. 30, Nu generated $1 billion in revenue with a $99.1 million loss. In June, Nu raised $2.3 billion in funding, including $500 million from Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B). The funding valued Nubank at $30 billion.
Nu wants to sell as many as 332.5 million Class A shares between $10 and $11, raising gross proceeds of $3.65 billion in the process. Based on 4.6 billion Class A shares to be outstanding post-IPO – and a midpoint of $10.50 – that values the company’s equity at $48.3 billion or 36x sales [based on $1 billion in sales for nine months, divided by three quarters, and multiplied by 4 to annualize].
SoFi is currently valued at 22.5x sales. If we give it the exact multiple as Nu, that increases its market cap from $18 billion to $28.9 billion and a share price of $36.42.
If you own SOFI stock, that’s got to be music to your ears.
The other fintech disruptor looking to go public is NerdWallet. InvestorPlace’s Chris MacDonald discussed its potential pre-IPO.
My colleague points out that the media company’s financial advice platform has seen its revenue jump 32% year-over-year while growing its user base to 21 million unique users per month.
Based on 64.7 million shares outstanding post-IPO, NerdWallet’s equity is valued at $1.16 billion. Based on annualized sales of $373.5 million, its price-sales ratio is 3.1x. Through the first nine months of 2021, it’s got an operating loss of $29.6 million.
I think if you look at media companies in the financial space, NerdWallet’s going out at a reasonable valuation, despite losing money.
However, it can’t hold a candle to Nu’s IPO. That’s a huge deal.
The Bottom Line
I don’t think there’s any doubt that both Nu and NerdWallet’s IPOs will be well received by investors. But, if they’re not, I’ll be shocked because fintech disruption remains one of the leading trends on Wall Street.
For this reason, if you have any inkling of buying SOFI, you might want to do it before too long. If both IPOs jump considerably, SOFI will be testing $30 or $35, not $25.
I continue to like SoFi stock.
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.
