Near its 52-week low, is SoFi Technologies (NASDAQ:SOFI) stock a buy?

SoFi Technologies (NASDAQ:SOFI) has been on a long decline over the past year, now trading near its 52-week low. The personal finance fintech platform lost around 24% of its value during this period, despite the overall market hitting new highs every week. This is a strange development, especially since the company has maintained strong revenue growth and achieved considerable margin expansion. Given the contrast between SoFi's financial performance and the stock price, I'm bullish on the stock.

SoFi's momentum shows no signs of slowing

SoFi has maintained strong momentum entering fiscal 2024, showing no signs of slowing down. Although the stock price suggests deteriorating performance, that's hardly the case, with revenue up 37.5% to around $645 million in its latest first-quarter results. This is in line with the previous quarter's growth of 36.6%, not far from last year's growth of 46.1%.

These numbers far exceed what we see today in fintech. Take PayPal (NASDAQ:PYPL), for example, whose revenues increased by 9.4% over the same period. Others, such as Block (New York Stock Exchange: SQ) and StoneCo (NYSE: STNE), grew their revenues by 19.4% and 15.5% respectively. While these companies differ in their offerings and solutions, collectively they illustrate that SoFi’s growth is outpacing current industry norms.

SoFi’s impressive growth can be primarily attributed to its growing member base and the increasing number of products offered on its platform. Total membership reached 8.1 million in the first quarter, up 44% from last year, with 622,000 new members added during the period. This is in line with the 44% increase from the previous quarter and is close to last year’s 46% growth, suggesting that the SoFi brand remains highly relevant and on-trend in the fintech space. Additionally, SoFi reported 989,000 new product additions during the quarter, which is a 38% increase from Q1 2023.

Margin expansion boosts GAAP earnings, reveals cheap valuation

As SoFi maintains strong revenue growth and creates room to improve its unit economics, the company is on track to post its first year of GAAP net income. Fundamentally, SoFi has significantly strengthened its brand equity and therefore doesn't need to advertise as much as it used to for each additional user added. As a result, its margins have expanded. In the first quarter, for example, SoFi's sales and marketing expenses rose to $167.4 million, down from $175.2 million, without sacrificing its user growth potential.

As a result, SoFi achieved a positive GAAP net profit margin of 13.8%, continuing the positive trend that began in the fourth quarter of 2023. After many quarters of negative margins, SoFi has shown that its business model is, after all, highly viable. Regardless, with positive margins on the horizon, Wall Street expects fiscal 2024 to be the first profitable GAAP fiscal year for the company, with earnings per share (EPS) expected to rise. establish at almost $0.08.

Of course, it's a small profit. However, with double-digit revenue growth expected and margins growing rapidly, consensus mid-term EPS estimates look particularly compelling. Wall Street forecasts EPS of $0.23 for fiscal 2025 and $0.44 for fiscal 2026.

These numbers show that SoFi is very attractive at its current levels. At just 14.5 times its FY2026 EPS outlook, this seems like a very cheap multiple, given that the company is taking the industry by storm. Of course, there is some speculation here, but SoFi's momentum strongly supports this assessment.

Another reason I like SoFi at this multiple is that the company's dilution has been decreasing. If SoFi was aggressively diluting shareholders through significant levels of stock-based compensation (SBC), as is common in the industry, its valuation metrics should be taken with a grain of salt. However, SoFi's SBC is down both overall and as a percentage of revenue. It came in at $55.1 million in the first quarter, down from $64.2 million last year and $77.0 million a year earlier.

Is SOFI Stock a Buy, According to Analysts?

Despite its prolonged decline, Wall Street still appears to have mixed feelings about the stock. Specifically, SoFi Technologies has a Hold consensus rating based on four Buys, nine Holds, and three Sells assigned over the past three months. At $8.35, the average price target for SoFi Technologies stock implies 26.3% upside potential.

The takeaway

Overall, SoFi stock appears to make a compelling case after its continued decline. With robust revenue growth, expanding margins and a growing membership base despite cutting marketing costs, it is evident that management's execution has been excellent. Additionally, because SoFi is now profitable on a GAAP basis, the risks are much lower than a few years ago when the company was losing money. With a strong medium-term EPS outlook and a declining share price, which has resulted in an increasingly attractive valuation, it seems like a great time to go long the stock.

Disclosure