SoFi Technologies (NASDAQ:SOFI) stock has been on a long and wild ride.
Initially known as a fintech company with a focus on student loan refinancing services, this company faced serious challenges with the Biden administration’s extended loan payment moratorium.
However, SoFi’s performance, rather than politics, should guide investment decisions. Here is why I think a bullish perspective on SOFI stock is warranted right now.
SoFi Fundamentals
SoFi’s emphasis on student loan refinancing and consumer credit could encounter obstacles as interest rates rise.
Federal student loans have fixed rates, posing challenges for SoFi to refinance at lower rates, affecting profitability and demand.
The federal loan moratorium led to a pause in student loan refinance demand as borrowers were reluctant to refinance privately because of immediate payments.
SoFi plans to expand and challenge traditional banks by adding more members and offering various financial products.
In Q2 2023, it gained 584,000 members and sold 847,000 diverse products, diversifying into loans, credit cards, investing, and banking services.
Why SoFi is a Buy
SoFi, initially known for student loan refinancing, has transformed into a comprehensive digital bank with a super app, offering various financial services like savings, investments, and peer-to-peer payments.
SoFi’s digital approach distinguishes it from traditional banks by eliminating the need for physical branches.
Users can access various banking services through the app, making it convenient to explore and use multiple products. SoFi entices users with points that can be redeemed for stocks or loan payments by engaging with the platform.
SoFi’s model is gaining popularity among customers, with memberships surging from 1 million in early 2020 to 6.2 million in Q2 2023. Unfortunately, the stock’s performance hasn’t aligned, possibly because of a bearish sentiment towards fintech stocks in the current higher-rate environment.
However, higher rates can boost profits for banks like SoFi, suggesting the market has misjudged its potential.
SoFi’s net interest profits are soaring because of rising rates. The end of the student loan freeze could further boost the business as demand for student loan refinancing returns. SoFi’s membership continues to grow, with 584,000 new members in Q2, marking a 44% year-over-year increase.
Bottom Line
SoFi Technologies shares have surged 4% to $8.09, with a notable 6.5% weekly gain and strong trading volume.
SoFi has a market cap of $7.2 billion and has shown strong revenue growth, with a positive outlook for earnings as well.
Analysts expect continued growth, and with a price-to-sales ratio of 2.36-times and price-to-book ratio of 1.35-times, SOFI stock looks attractive from a valuation standpoint.
The next earnings report is set for Nov. 8, with earnings per share expected to come in at -$0.06 for the current quarter. Investors should closely monitor SOFI’s financial performance, but this is a stock I remain cautiously optimistic on right now.
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.
