Growth investors suffered a tough market downturn recently, and SoFi holders were no different. Year-to-date, the Nasdaq 100, which tracks large cap growth equities, has dropped about 10%. While that makes it nerve-racking to step in to the market, some great stocks are now excellent buys. So is SoFi stock a buy at these levels?
Straight to the point: SoFi Technologies (NASDAQ:SOFI) is a fantastic stock that you can’t afford to overlook right now. This fintech is severely undervalued at the moment, making it a great buy. Here’s our take.
SoFi stock lost almost half its value in the last 3 months
SoFi is a digital lender and personal finance business that was founded in 2011 but has only been public since June 2021. Its mobile app provides loans, mortgages, banking services, investments, personal finance tools, and direct deposits, among other things.
Caught in the tech current
While its stock price rose to about $23 per share on Nov. 4, it then began a rapid drop over the next three months. It was caught up in the broader market downturn that affected growth stocks and fintechs in particular. SoFi stock has dropped approximately 45%. Its current value is less than $12 per share, down more than 20% year to date.
It’s concerning anytime a stock drops by such a large amount, especially when the firm is still young and hasn’t yet turned a profit. There are, however, three compelling reasons why investors should consider this as an opportunity to buy.
Three Reasons to Buy SoFi
SoFi stands out in a competitive market for a few key reasons. The first is its exceptional growth. Its membership, consumers who utilize its services, has almost doubled in the past year to about 3 million people. It grew by 500,000 in the third quarter alone.
Moreover, total products jumped 108% to about 4.3 million in the past year. Total products is the total number of products and services that members use. From the second quarter the third quarter, that number rose 24%. Furthermore, it fueled a 35% rise in third-quarter revenue to $272 million from the same quarter last year. On March 1, SoFi is scheduled to release its fourth-quarter and full-year results.
Second: SAS revenues
The second reason for SoFi’s success has to do with its technology-services arm, which is a banking-as-a-service business that is a key differentiator. The firm outsources its IT and expertise to other firms and organizations that wish to offer their own digital-banking services in this sector.
And, the division is skyrocketing. Their 2020 Galileo purchaser was a success, with third-quarter revenue climbing 29% year over year to $55 million. This is not only a revenue source on its own; it also opens up significant marketing possibilities to cross-sell SoFi’s lending and other services.
Third: a fresh banking license
The third benefit is SoFi’s recent bank charter. Sofi obtained it through its February 2 takeover of Golden Pacific Bancorp. This is a significant development, as it is unusual for a fintech to be granted a banking license. There are exceptions, however, and many new doors are now open.
Since getting the license, SoFi can hold deposits. The company couldn’t do that before because it needed to collaborate with banks to originate loans. Now that SoFi has its own bank charter, it does not have to share revenue and may set its own interest rates. Previously, it would have had to go through its bank partners in order for SoFi to set its own
SoFi’s low overhead allows it to potentially offer higher interest rates on customer accounts, giving it a competitive edge. The company does not have to pay interest to bank partners in order to fund its lending activity. Furthermore, because it can now keep loans on its balance sheet, it may get interest throughout the loan’s term.
A Great Low Priced Stock to Buy
Golden Pacific Bancorp’s acquisition will enable SoFi to pursue its objective of creating a nationwide digital bank while continuing to operate physical bank branches in California. It previously stated that members’ accounts would offer an annual percentage yield of up to 1%, which is greater than the national average interest on balances..
With a bank charter in place, SoFi should be able to differentiate from other fintech companies by generating higher interest income during this period of increasing interest rates. It also has the banking-as-a-service business to diversify its revenue stream.
Indeed SoFi is still not profitable, and it might take some time for the company to establish itself as a digital bank against a new class of rivals in the banking business. However, it has a lot of brand recognition, particularly among younger people, owing to its origins as an exclusively student-loan provider. SoFi has enough long-term potential, and at this low price.
Our take: we’re going to buy SoFi stock, it’s too cheap to ignore.