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SoFi stock has been on a wild ride since going public. If you're a shareholder, you may be wondering if it's time to get off this roller coaster. If you're interested in buying a disruptive company in the financial space, you may be looking at the recent dip as a buying opportunity.
We're here to help you decide whether to buy or sell SoFi stock today.
SoFi Technologies Inc. (NASDAQ: SOFI) has been one of the more successful SPAC mergers this year. As most post-merger special purpose acquisition companies have been falling when the deal closed, SoFi has stayed comfortably above the original $10 IPO price. The stock has traded as high as $26 when the deal was announced before pulling back and now trades in the $16 area.
Is this a buying opportunity, or is the stock going to head even lower?
Let's take a look...
Why SoFi Stock Is So Popular Now
SoFi is a fintech stock, but the company looks and acts like a bank. It is using technology to innovate traditional banking by offering a suite of financial tools that members can use to manage their personal finances. It encourages members to manage debt carefully, establish a safety net, and invest wisely to meet their goals. It uses a digital platform to help users pay down student debt, get mortgages, invest in the stock and bond market, and be engaged with their finances.
SoFi rewards its members for making smart financial moves with a points-based rewards program. Checking the app, managing your accounts, checking your credit score regularly, and reducing debt are the types of activities that can earn points for SoFi members.
Points can be turned into fractional shares of your favorite stocks, payments on your credit card debt, turn them into cash, and you can even convert SoFi points into cryptocurrency.
SoFi is attracting younger adults who have no long-lasting relationship with a traditional bank and are open to new ways of handling their finances. It focuses heavily on offering financial education that the banks and traditional investment firms do not offer.
Financial education is lacking in our education system at every level. As a result, most people come out of high school and college with little idea of how to manage their finances. The concepts of paying bills, limiting borrowing, and saving money are subjects that no one has ever talked to them about before.
SoFi is filling that void and earning customer loyalty. The education platform and fast, efficient digital platform will make it a formidable competitor to traditional banks, mortgage companies, and investment brokerages.
SoFi is in the process of applying for a bank charter. Gaining a bank charter that allows it to offer FDIC-insured accounts to its customers will increase that advantage. The decision on its application is expected in November of this year.
Back in March, SoFi announced that it was Golden Pacific Bancorp Inc. (GPBI) and its wholly-owned subsidiary Golden Pacific Bank. That means its startup application is now a change of control application. We think this move makes approval even more likely for SoFi's application.
With its all-digital platform and appeal to millennial customers, SoFi will be a formidable competitor to big banks. Younger adults really do not like doing business with traditional banks, and SoFi is giving them a better option.
While this is unquestionably exciting - investors love a disruptor - we've got to look at whether the stock has the potential to go higher or lower from here before buying or selling.
And that's a totally different question.
Should I Buy or Sell SoFi Stock?
SoFi is growing quickly with a 100% year-over-year increase in membership in the first quarter of 2021, driving 121% year-over-year revenue growth. In addition, membership growth has accelerated in each of the previous seven quarters.
SoFi has focused on getting users to have more than one type of account. The more accounts a member has with SoFi, the less likely they are to level and go to a competitor for their financial services needs.
So far this year, the number of members that have at least two accounts has grown by almost 100%.
Does that mean we should buy SoFi stock here?
Unfortunately, the answer is probably not.
SoFi shares are trading at an absurd valuation for what is essentially a digital financial services company. While that might warrant a premium to the valuation of traditional financial firms, it is not a large enough premium to justify the current price of shares of SoFi.
SoFi's stock is currently trading at 24.7 times sales, which is absurdly high even for a tech stock, much less a financial services company. The average price/sales ratio for a tech stock right now is 5.22.
Success attracts competition, and as SoFi grows, it will find it tough to keep increasing its membership growth by triple-digit percentages year in and year out.
Banks are going to find a way to fight back eventually as well.
We think that SoFi will be a solid growth stock going forward, but for now, the valuation is just too high. It will remain on our watch list as a leading candidate to add to our portfolio should the market sell off and gives us a chance to buy SoFi at a more reasonable valuation.
If you're already a shareholder, it's a good idea to hold, especially if you got in at the SPAC price around $10.
And if you want to jump in early on another fintech disruptor before it goes public, we've got an opportunity there too.
This fintech play is similar to SoFi in that it's leveling the playing field against traditional banks by using technology to lower fees and offer better features for customers.
The SPAC is currently trading for $10, just like SoFi did before going public.
Take a look at why this one could offer similar upside right here.
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