SoFi is a fintech company trading at a massive discount compared to its historical valuation, making the stock a top buy right now.
Shares of fintech company SoFi Technologies (NASDAQ: SOFI) are trading 77% below all-time highs, valuing it at $4.8 billion by market cap. Similar to several other growth stocks, SoFi has lost significant momentum in 2022 due to a variety of macroeconomic reasons as well as steep valuations surrounding these companies.
Let's see if SoFi stock can stage a comeback and outpace the broader markets going forward.
An overview of SoFi Technologies
SoFi is a financial services company where users can borrow, save and invest their money. It has three business segments: Lending, Financial Services, and Technology Platforms. Its lending and financial services business offers products such as student loans, personal loans, and home loans. It also provides cash management, investment, and technology services.
SoFi operates Galileo, a technology platform that provides services to institutions, while Apex is another tech-enabled platform offering investment custody and clearing brokerage services.
SoFi has increased sales from $270 million in 2018 to $985 million in 2021. Analysts now expect the company's sales to rise to $1.48 billion in 2022 and $2.05 billion in 2023.
The bull case for SoFi
The lending industry is highly cyclical, suggesting these companies underperform in periods of economic turbulence. For instance, the delinquency rates or the risk of defaults rise higher during economic recessions, widening the losses for companies operating in this space.
However, during the Q1 earnings call, SoFi's CEO, Anthony Noto, claimed the FICO score for personal loan borrowers stands at 746, with an average annual income of $160,000. Comparatively, the average FICO score and annual income for student loan borrowers are 775 and $170,000, respectively.
SoFi added 408,000 new members in Q1, the third-highest new member additions in a single quarter. It ended Q1 with 3.9 million members, an increase of 70% year-over-year. The company originated over $2 billion in personal loans in the March quarter compared to $1.6 billion in Q4 of 2021 and $1.3 billion in the year-ago period.
These stellar metrics showcase SoFi's ability to maintain an attractive credit profile and the ability to capture market share, which is estimated at over $1 trillion. In addition, its personal loan performance in Q1 allowed SoFi to offset the lack of demand in verticals such as student loan refinancing and home loans.
In Q1, SoFi reported revenue of $330 million, an increase of 69% year-over-year. Its stellar revenue growth allowed the company to report an adjusted EBITDA of $9 million. Its EBITDA remained positive for the seventh straight quarter and is expected to surpass $100 million in 2022.
Is SoFi stock a buy?
In the last year, SoFi acquired businesses such as Galileo and Technisys, which will drive revenue growth in 2022 and beyond. Galileo's digital payments platform enables functionalities similar to savings and checking accounts via open APIs, allowing companies to create a sophisticated suite of financial services.
The Technisys platform allows enterprise partners to leverage vast amounts of data and offer new products to improve customer engagement.
SoFi stock is valued at 3.2x forward sales, which is quite reasonable for a company growing at a fast clip. Its adjusted loss is forecast to narrow from $1 per share in 2021 to $0.26 per share in 2023.
Wall Street remains bullish on SoFi stock and has a 12-month average price target of $10.6, which is 60% above its current trading price.
