Fintech giant SoFi Technologies (NASDAQ:SOFI) silenced its skeptics again by posting another stellar quarterly report and blowing past expectations across both lines. Yet, SOFI stock remains surprisingly unmoved, having shed more than 10% in the past week alone. Nevertheless, its robust financial health, looming interest rate cuts, and dynamic growth in its financial services division make it a buy at current prices.
SoFi had a forgettable run at the stock market over the past year, trading 74% behind its all-time high in February 2021 and more than 50% behind its 52-week high price. However, its improving fundamentals starkly contrast with its dismal stock market performance. It’s expected to grow rapidly over the next few years, posting double-digit gains across its top and bottom lines. Hence, it’s only a matter of time before SOFI stock reflects its outstanding operational growth.
With that in mind, let’s explore the evolving bullish narrative of this personal finance and loan services behemoth.
Blow-Out Q2 Earnings Adds To SOFI’s Market Leadership
SoFi dropped another banger of a quarterly report late last month, adding to its already compelling bull case. It’s noteworthy that, over the past 12 quarters, it consistently outperformed expectations, delivering positive earnings surprises in 83.3% of cases.
Its second-quarter results smashed expectations and boosted third-quarter guidance and full-year forecasts. Additionally, its Financial Services and Tech Platform divisions shined, adding to its massive long-term growth trajectory.
Second quarter GAAP EPS of 1 cent beat forecasts, outperforming by a cent. Additionally, adjusted sales came in at $597 million, beating the $566.9 million consensus, jumping 22.1% from the prior-year period. SoFi’s Financial Services and Tech Platform segments spearheaded SoFi’s stellar expansion, representing 45% of its top-line growth, compared to 32% a couple of years ago.
As we look ahead, SoFi expects adjusted sales to fall in the $2.425 billion to $2.465 billion range (versus $2.42 billion consensus), roughly 1.45% at the mid-point. For the third quarter, SoFi projects adjusted net sales of $625 million to $645 million (versus $612 million consensus), with an EPS of 4 cents compared to the 3-cent consensus. Additionally, the firm aims for tangible book value growth of $800 million to $1 billion, planning to add at least 2.3 million new members this year.
Low Interest Rates Could Fuel Loan Business Growth
Fed Chair Jerome Powell’s comment on a potential rate cut in September being “on the table” is promising news for SoFi’s loan operations.
SoFi is a highly diversified fintech player, yet it first made its mark by revolutionizing student loan finance. From 2022 to 2023, SoFi and similar firms witnessed a deep correction in student loan refinancing, mainly due to the federal moratorium on payments and interest from the pandemic. The pause was repeatedly extended into 2023, effectively removing the anxiety and benefit of refinancing. Additionally, the jump in interest rates and other economic uncertainties significantly reduced demand in this segment.
However, with rate cuts expected over the next few months, we could see an impressive comeback in SoFi’s lending business. The potential benefits of these rate cuts are significant. Lower rates will enhance borrowing appeal by reducing financing costs and accelerating loan volume growth and profitability. Also, lower finance costs will positively impact net interest margins, building on SoFi’s bottom line.
Meanwhile, SoFi’s Financial Services and Tech Platform segments continue to grow rapidly, offsetting the sluggishness of its lending business. Its Financial Services division, in particular, has grown remarkably on the back of operational efficiencies, effective member acquisitions, and optimization of unit economics. Additionally, the division is expected to skyrocket by 50% over the next three years, outpacing the broader business’s anticipated growth of 20% to 25%.
Bottom Line on SOFI Stock
Despite an underwhelming showing in stock price, SoFi’s powerful financial health and dynamic growth in its financial services segment make it an attractive buy. The stock has dipped significantly from an all-time high, contrasting sharply with its improving fundamentals, consistently surpassing expectations.
Moreover, with rate cuts coming up, SoFi is poised for a revival in its lending operations, potentially adding to its top- and bottom-line growth. Also, the superb results in its financial services division point to a brighter future, with significant growth expected in the upcoming years.
Consequently, Wall Street analysts set an average price target of $8.38, suggesting a potential 31% upside from current prices. The highest projection, at $12, indicates even greater confidence in its future expansion.
On the date of publication, Muslim Farooque 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
