SoFi Technologies (NASDAQ: SOFI) is well known for taking on the financial services industry with a user-friendly focus. And it's doing a wonderful job at winning over customers.
But for such an innovative business, this fintech stock has been hugely disappointing. It's down 33% in 2024 (as of Aug. 2), and it currently trades 74% off its Februrary 2021 high.
Perhaps now is a good time to scoop up SoFi shares on the dip. But is this stock a millionaire maker?
Disrupting financial services
What SoFi has accomplished in the 13 years since its founding is commendable. The company is disrupting financial services with its digital-only offerings, providing its customers with a better user experience compared to what the traditional banks are known for. All through the SoFi mobile app, it's possible to open a checking or savings account, invest in stocks or cryptocurrencies, and get a personal loan.
The strategy is simple. SoFi's management team is focused on introducing new products and services, while targeting younger and more affluent consumers. What started as a student loan refinancer is now a well-respected banking entity.
Admittedly, the growth has slowed down. Gone are the days of 50% or more in annual revenue gains. However, SoFi continues to expand at a healthy pace, which is even more impressive considering the uncertain economic environment the U.S. has been in.
In the second quarter, the business posted sales of $599 million, up 20% year over year. This was driven by SoFi adding 643,000 new customers (which it calls members), bringing the total to nearly 8.8 million.
It's anyone's guess what SoFi's total addressable market is. However, the domestic banking industry is truly massive. CEO Anthony Noto has said he wants this to be a top 10 financial institution one day.
SoFi's profit potential
The typical playbook for many growth tech businesses is that they invest all their resources into attracting customers by plowing money behind product development and marketing efforts. To be clear, SoFi has adopted this strategy historically. But now it's starting to bear fruit.
That is because the business is now profitable. In fact, the company's $17 million Q2 net income was the third straight quarter of a positive bottom line.
SoFi does not operate any physical bank branches. This digital-first approach should, in theory, result in a scalable business model. A largely fixed cost structure can lead to profits once a certain level of revenue is hit. It looks like SoFi has crossed this point. Of course, the company will continue to spend on marketing and product development, but these investments are now leveraged over a higher sales and customer base.
Executives believe the future is extremely bright. They upped their full-year guidance, now forecasting net income to total between $175 million and $185 million. And in 2026, SoFi is projected to report earnings per share of $0.68 (at the midpoint), with annual growth of 20% to 25% after that. It's hard not to get optimistic when thinking about these targets.
Joining the seven-figure club
Based on its growth numbers, coupled with the start of what looks to be consistent profit generation, SoFi looks like a solid business that should be on investors' radars. But can the stock make you a millionaire?
Because SoFi shares have performed poorly, they trade at a reasonable price-to-sales ratio of 2.9. This is well below its historical average, and it adds potential upside to the equation should the market rerate the stock higher.
If you're bullish on SoFi, then it makes sense to buy shares with the intention of holding for several years. Those who are able to not only invest more capital upfront, but who can extend their time horizon, have a better shot at getting to millionaire status.
Should you invest $1,000 in SoFi Technologies right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Is SoFi a Millionaire Maker? was originally published by The Motley Fool