SoFi Technologies (NASDAQ: SOFI) has taken shareholders on a whirlwind ride. The stock initially soared, then dropped 82%, and then reached new highs only three years later, soaring 650%. Now, it’s 54% off that high in just a few months.
Is this a risky stock that’s too volatile? Or an investing opportunity? Let’s go over performance, risks, and opportunities to see if it can reclaim its previous high and move even higher.
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SoFi’s performance
For the most part, SoFi has delivered consistent stellar quarterly performance. Revenue, customers, product adoption, and profits are all increasing at sustained double-digit rates. The company, which operates an online financial platform, is still fairly small but has big ambitions. Judging by current results, it can get there.
In the second quarter, adjusted net revenue increased 40% year over year to $1.2 billion, and earnings per share (EPS) rose from $0.08 to $0.12. It added 1.1 million members, a 35% increase over last year, and 2.2 million products, a 42% increase. That implies the company’s “one-stop shop” cross-buy strategy is working, and indeed, 51% of new products came from existing customers.
SoFi’s risks
These fantastic results weren’t enough to please the market. One of its segments, Tech Platform, continues to report a sales decline following the loss of a major customer. Management also failed to raise net income guidance, even though it raised revenue guidance.
It’s facing competition not just from the established legacy banks but also from other digital banks like Ally, Happen (formerly Lending Club), and even Brazil’s Nu Holdings, which just launched in the U.S.
Finally, the stock was expensive. Considering the potential flaws, the market determined that it wasn’t worth that price anymore. Right now, it trades at a P/E ratio of 31 and a price-to-book ratio of 1.7.
SoFi’s opportunities
SoFi is still a small player compared to the big banks, but it’s growing much faster. Consider its size and growth relative to some of the big banks, like JPMorgan Chase and Bank of America, as well as some of its digital competitors.
SOFI Revenue (TTM) data by YCharts
It’s launching new products targeting its younger clientele, who are the customers growing with it. It just launched its latest offering, a tokenized deposit account that allows users to make money on their cryptocurrency. Net income is growing faster than adjusted net revenue, indicating efficient growth.
