Sofia (NASDAQ: SOFI), the innovative online personal finance company with remarkable growth potential, has been roughed up lately. The company’s stock price crashed below its post-IPO low during the recent sell-off and is still around 70% off its ATH. However, despite the growth scare-induced declines, SoFi’s business remains very attractive, is expected to continue to grow rapidly, and will likely become increasingly profitable as the business progresses. I recently doubled my position in SoFi, and the company remains one of the top growth picks for 2022 and beyond.
SoFi 1-Year Chart
Technically, SoFi shares made a bearish double top around $25. Additionally, the second bump occurred during the Nasdaq peak in November, and SoFi has been on a downward slide ever since. Unfortunately, SoFi is relatively new to the public markets and the company does not yet have a sustainable earning power. Therefore, it was relatively easy to bring down the shares of the company. However, the bottom was probably placed below $8.
SoFi: the future of banking
SoFi is arguably the future of finance. With SoFi, you get access to loans, investments, cryptocurrency trading, banking, credit rating monitoring, insurance, etc. Additionally, many of SoFi’s services are low-cost or free, an attractive alternative to more traditional banking/financial options. As we move forward, more people are expected to take advantage of SoFi’s convenient and inexpensive services, which is why the company is expected to continue to grow and expand in the years to come. Additionally, SoFi appears to be the leader in its space, giving the company first-mover advantage in the online personal finance space.
SoFi Rating Check
At $9.50 per share, SoFi’s market capitalization is approximately $7.6 billion. However, when the stock bottomed out at around $7.50, the company’s market capitalization was only around $6 billion. SoFi is a high-growth company that is focused on growth, not profits, at this time. Therefore, we cannot perform a traditional price-earnings ratio or PEG ratio analysis. However, we can gauge SoFi’s valuation by looking at its revenue growth, price-to-sales ratio, and other metrics.
SoFi generated $1.01 billion in revenue last year, and consensus estimates are around $1.53 billion this year. Therefore, the company is expected to have revenue growth of around 51.5% this year. Revenue growth in excess of 50% is spectacular, and the company’s robust expansion is expected to continue in the years to come. Consensus estimates for next year are around $2.17 billion in income. Moreover, the higher estimates are for significantly higher incomes of around $2.4 billion Next year.
When SoFi’s market capitalization hit around $6 billion, the stock traded at a low of 2.76 times forward sales. SoFi is currently trading at just 3.5x consensus sales expectations this year. This valuation is very cheap because the company’s sales are expected to continue to increase significantly in the coming years, and SoFi is expected to become increasingly profitable over time. Also, if we look at other growth companies with comparable growth projections, SoFi is cheap right now.
- Palantir (PLTR), another high-growth company, trades at around 13 times forward sales.
- Affirm Holdings (AFRM) is trading at around 7.5x 2022 earnings forecast.
- Upstart Holdings (UPST) is also trading at around 7.5x 2022 sales estimates.
- DocuSign (DOCU) is currently trading at around eight times forward sales.
- The Trade Desk (TTD) trades at around 20 times forward sales.
Due to SoFi’s unique business model, it’s not easy to find a nearby company to compare valuations with. Nonetheless, when we look at comparable high-growth, revenue-constrained technology services companies, we find that SoFi is relatively cheap right now. Even mature tech names with much less growth potential are trading at much higher prices relative to selling multiples.
- Microsoft (MSFT) is a mature company with low double-digit growth, but it trades at around 11 times forward sales.
- Netflix (NFLX) has fallen dramatically due to its growth issues, and is currently trading at around 5.5 times forward sales.
- Nvidia (NVDA) is currently selling around 18 times the revenue forecast.
- After a dramatic drop, PayPal (PYPL) is trading at around five times sales, but it is still more expensive than SoFi.
None of these companies have anything close to SoFi’s growth potential, but they are trading at a higher price relative to selling multiples. Most of the companies mentioned here likely have low double-digit and single-digit revenue growth prospects in the coming years. SoFi will likely eclipse revenue growth of 50% this year and is expected to generate growth of around 40% in 2023. Additionally, the company is expected to continue to grow revenue at a significant rate beyond 2023 to be profitable. The current momentum of growth and profitability potential illustrates that SoFi is a strong buy at 3.5 times the sell valuation.
Here’s what SoFi’s finances could look like in the years to come:
|Income||$1.53 billion||$2.17 billion||$2.93 billion||$3.81 billion|
|Futures price to sales ratio||5||6||7||7|
|Market capitalization||$10.85 billion||$17.58 billion||$26.67 billion||$33.34 billion|
While I’m not applying overly bullish projections here, we can see that SoFi’s stock price can rise significantly due to its robust revenue growth and modest P/S expansion. Seven times the sales is not a very high ratio, as many growth stocks and even mature companies trade at significantly higher ratios. Also, my revenue projections are relatively modest, as I’m using 2022/2023 consensus numbers and phasing revenue growth down to 25% in 2026. Therefore, it’s reasonable to expect substantial appreciation. of SoFi’s stock price in the coming years.
Risks for SoFi
Naturally, risks exist when it comes to an investment with high potential returns. SoFi is a hybrid tech/financial company potentially exposed to loan losses. This momentum is why we are seeing significant growth at a relatively low price-to-sales ratio. In addition, SoFi faces the risk of increased competition, which could diminish its dominance and decrease its market share. There is also a risk of continued selling pressure due to SoFi’s status as a low profitability growth name. The risks exist and should be carefully weighed before considering an investment in SoFi Technologies.