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Proprietary Data Insights Financial Pros’ Top Credit Services Stock Searches in the Last Month
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Financial Pros Keep Eyeballing SoFi’s Stock |
SoFi Technologies (SOFI) isn’t profitable. And they gobble up tons of cash. The stock, which went public in late 2020, is down 65% from its all-time highs and roughly 6% from its IPO. Yet, financial pros search this stock more than any other credit services stock. In fact, it’s the 14th most searched stock overall in the past month, beating out companies like Netflix, Uber, and even Exxon Mobil. What exactly do they see in this company? From our point of view, it may be more rubber-necking than actual research. SoFi’s Business SOFI is a cutting-edge digital financial services provider focusing on member-centric solutions. Their mission is to simplify personal finance by helping members borrow, save, spend, invest, and protect their money through one platform. By leveraging technology, data analytics, and a strategic Financial Services Productivity Loop (FSPL), SOFI aims to attract members with low-cost or free products and then cross-sell higher-margin products such as loans and insurance. The business is broken down into the following segments:
SOFI‘s most recent quarterly report for Q1 2023 paints a picture of success and growth with record GAAP and adjusted net revenue of $472 million, up 43% year-over-year, and record adjusted EBITDA of $76 million, up a staggering 772% year-over-year. However, analysts worried that the company’s breakneck growth may be slowing. Member growth has slowed from 113% to 70% to 69% to 44% in Q2 from 2021 to the present.
Source: SOFI Investor Relations Financials
Source: Stock Analysis SOFI operates much like a bank. So, we have to evaluate it based on operating, EBITDA, and profit margins. To that end, the company’s done a remarkable job improving its position. Much of its inability to generate a P&L profit and positive cash flow is due to the heavy growth. Why? When the company takes on more loans, that takes cash. And if you look at the P&L, it’s not that far from a profit. Like many newer companies, it’s being held back by share-based compensation and some depreciation. Plus, the company is killing it on the net interest margin front, pulling in almost 6%.
Source: SOFI Investor Relations
Valuation
Source: Stock Analysis So how do we value the company without earnings or meaningful cash flow? Price-to-sales puts SOFI at a might higher valuation than it’s peers. But we can also look at the price-to-adjusted EBITDA ratio around 6.5x. While that’s not bad, it’s also pretty high. Growth
Source: Seeking Alpha What SOFI does have is growth. Companies like Discover (DFS) are ecstatic with 10.5% forward revenue growth. Others, like Capital One (COF), are happy with 7.2%. But none of them compare to SOFI. Profitability
Source: Seeking Alpha But growth can’t cover up profitability problems. Every other company on this list, including the much-maligned Lending Club (LC) delivers positive net income. SOFI will get there, but it could be years. Our Opinion 5/10 Nothing has materially changed since SOFI traded at $5 barely three months ago. Yet, the stock has more than doubled. While growth isn’t disappearing anytime soon, a potential recession or even rate cuts would hamper the company’s profitability. We also don’t see depreciation or share compensation changing anytime soon. With cash being plowed back into growth and over $3 billion on hand, the company isn’t in danger of folding or reducing spending anytime soon. We just see a lot of mixed signals here that warrant caution. |
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