SoFi Technologies (SOFI) stock surged by 89% this year because of favorable business conditions, including the end of the student loan moratorium.
Investors are divided over how to assess the business as a fintech or a conventional bank, because it provides a variety of monetary services.
This article will examine SoFi’s business strategy and assess its investment prospects.
Let’s dive in!
Recent News on SoFi
Around 44 million Americans hold federal student loans and the question of whether they should be repaid has been a contentious issue. Recently, the Biden administration’s effort to cancel federal education loans was thwarted by the Supreme Court.
With the highest court ruling against the plan, it remains uncertain what the next steps will be for addressing student loan repayment.
Before the Supreme Court’s decision on student loan forgiveness, SoFi stock had already experienced a significant rally.
Analysts, including Giuliano Bologna from Compass Point Research and Reginald Smith from JPMorgan, expressed the view that the stock’s impressive performance may have been excessive.
They noted that the end of the student loan repayment pause was already anticipated, and they did not expect the court ruling to have a substantial impact on SoFi Technologies.
The market seemed to have taken into account Reginald Smith’s observation that only a small number of individuals refinance their student loan debt with private lenders.
This could explain why SOFI stock declined following the Supreme Court’s ruling. The expected end of the student loan repayment pause had already been factored in, and the actual impact on SoFi Technologies may not be as significant as some optimistic investors had anticipated.
SoFi’s Price Doubled
SOFI stock has experienced a significant rally, doubling its share price in less than six months. However, considering that SoFi Technologies is consistently unprofitable, it is challenging to justify the extreme short-term optimism.
The stock’s surge can be attributed to factors such as revenue from student loan refinancing and the company’s resilience compared to regional banks. Cautious investors may question whether these factors warrant a more than 100% increase in SoFi Technologies’ share price.
What Now
The debate surrounding SoFi revolves around whether it should be classified as a booming fintech or a traditional bank. Currently, SoFi carries a much higher valuation than major banks like JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC).
However, it’s important to consider a company’s growth prospects when evaluating its valuation. While established banks show stable but modest growth rates, SoFi has experienced remarkable revenue growth of 151% over three years. Therefore, its higher valuation is justified by its rapid expansion.
Despite the need for profitability, SoFi will benefit from positive factors like the conclusion of the student loan moratorium and the swift expansion of its financial services.
Its technology business presents an opportunity in the banking-as-a-service sector, projected to grow at a rate of 17% annually until 2030. With its rapid growth and promising technology ventures, SoFi appears to be a strong long-term investment option.
On the date of publication, Chris MacDonald 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.
