Will SoFi Technologies (SOFI) Continue to Rally?

In the past decade, the fintech space has made financial services more accessible to the general public and has pushed established financial institutions to adjust to the new technologies. Innovation, new information and communication technologies have pushed more and more players into this thriving market, enhancing market competition.

SoFi Technologies, Inc. (SOFI), is a digital financial services company that has developed a platform to offer products to customers in order to meet their financial needs. It operates through three segments: Lending, Financial Services, and Technology Platform. Its Lending segment offers multiple loan products, such as student loans, personal loans, and home loans. Its Financial Services provides solutions, including cash management and investment services across its SoFi Money, SoFi Invest, SoFi Credit Card, and SoFi Relay products. Its Technology Platform operates through the Galileo platform services and Apex clearing brokerage services.

SOFI is set to disrupt the personal finance industry with an all-in-one app that allows its customers to save, spend, borrow, earn, invest and protect their money all in one place. SOFI also offers complimentary services like access to career coaching, Certified Financial Planners, and exclusive member events.

The company’s stock rallied 27.6% since the beginning of the year.

The acquisition of a national bank charter is a compelling catalyst for investors, that was validated by the growing interest in the company’s latest senior debt offering

This year, SOFI is planning to purchase a national bank charter that should increase its lending capabilities and lower its cost of capital. This is a key catalyst of SOFI’s long-term growth. By simplifying its regulatory burden, the company will be able to focus on increasing revenues from the numerous digital solutions it provides to its customers.

In its latest investor presentation, the company estimated that with a national bank charter, its adjusted EBITDA will nearly double in 2022, from $254m to $447m with the bank charter.

Recently, the company announced its intention to raise, in a private offering only, $750m through a convertible debt offering due in 2026. The proceeds will be used to fund the cost of entering into the capped call transactions and for general corporate purposes. The high demand for its offering has pushed SOFI to increase the aggregate principal amount to $1.1b on September 29th, which is constructive for the long-term prospects of the lending company.

Analysts expect hyper-growth in the coming years and the market seems to undervalue this component

In terms of financials, SOFI is expected to significantly boost its top line, as revenues should progress 50.2% year-on-year to $1.45b in 2022. Besides, SOFI’s hyper-growth should continue in 2023, as the company is anticipated to post net sales of $2.08b, up 43.3% year-on-year.

On the other hand, SOFI’s bottom line is improving year-over-year, but the lending company is still not profitable. SOFI should post a net loss of $485m in 2021, which will decrease to -$219m in 2022. However, analysts are expecting SOFI to reach profitability by 2023, with a yearly anticipated net income of $283m.

The overall consensus of Wall St. analysts is bullish on SOFI, as four out of five analysts have a buy recommendation, with an average 12-month target price of $24.5 per share, corresponding to an upside of 54.28%.

SOFI’s valuation metrics are slightly stretched when compared to the lending industry, with a P/B ratio of 2.98x and a P/S of 12.63x. However, the current price of SOFI is cheap when looking at the rapid expected top-line growth.

Conclusion

The global financial technology market is expected to grow at a fast pace. That growth equates to a compound annual rate of about 23.41% over the forecast period 2021-2026.

Given this backdrop, SOFI is well-positioned to take a piece of this fast-growing market, given its vertical integration and the upcoming national bank charter that will multiply its revenue stream. Therefore, it is my belief that SOFI’s stock should continue its rally and provide compelling long-term returns to its shareholders.