- Sofi Technologies (SOFI) reported strong growth in Q1 members and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization.)
- SOFI stock now trades for just 1.1 times book value and is likely trading below book value on a forecast basis.
- Value investors might want to take a second look at SOFI stock given how cheap it appears to be now.
Sofi Technologies (NASDAQ:SOFI) reported strong first-quarter results on May 10, including growth in membership and revenue. It also reported a large increase in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization.) Moreover, the company reported an increase — not a reduction — in its book value (shareholders’ equity.) That makes SOFI stock look like a bargain now.
For example, as of May 18, SOFI stock has a market capitalization of $5.78 billion. But its shareholders’ equity (book value) rose from $4.377 billion at the end of 2021 to $5.211 billion on March 31. That is a gain of 19% in just one quarter.
This is where the valuation opportunity presents itself. SOFI stock trades for just 1.1 times book value (BV). That is simply too cheap. The reason is its BV is likely to keep growing over the coming year, and that implies its P/BV multiple will fall below 1x.
| SOFI | SoFi Technologies | $7.24 |
Where This Could Leave SOFI Stock
Sofi went to great pains to show its actual revenue and adjusted EBITDA in Q1 ended up much higher than its prior guidance. The company also provided guidance for “strong growth” in Q2, with revenue up 39% to 43% year-over-year.
With EBITDA guidance of $5 million to $15 million, one can probably expect it is low-balling what it really expects to see in Q2. As a result, there is every reason to believe its Q2 and 2022 year-end book value will grow significantly.
For example, let’s say the shareholders’ equity grows by 5% for the next three quarters. That is significantly lower than the 19% gain in Q1. It also works out to a 15.76% compound growth rate by the 2022 year-end. That puts its book value at just over $6 billion.
This means if SOFI stock stays where it is today, its price-to-book value will fall to 0.959 times. That is not likely to happen if the company keeps on experiencing good growth as it did in Q1.
For example, if the market raises its P/BV to 1.25x by the end of 2022, that puts SoFi’s potential market cap at $7.54 billion. This is 30.4% more than its market cap of $5.78 billion today.
What to Do With SOFI Stock
The values calculated above imply SOFI stock could be worth 30% more, or $9.43 per share (i.e., $7.23 x 1.304). That is a pretty good return for most investors, assuming the stock trades for 1.25x book value by the end of the year. It also assumes quarterly book value growth is 5% for each of the next three quarters.
With that in mind, value investors should consider picking up some shares of SOFI stock.
On the date of publication, Mark Hake did not hold (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.
