SoFi Technologies Stock: Is Now the Right Time to Buy Amidst a 48% Rally in 2023?

If you’ve been holding shares of SoFi Technologies (NASDAQ: SOFI), it’s likely been a turbulent experience. The stock is trading at approximately 74% below its historical peak. Yet, since the outset of 2023, SoFi has witnessed a 48% increase as of mid-June, hinting at some intriguing upward momentum. Now that the shares hover below the $7 mark, the pressing question is: should you consider snapping them up? Let’s explore the bearish and bullish perspectives to see if SoFi deserves a spot in your portfolio.

The Bear Case
Financial services are fiercely competitive. Checking accounts, savings, brokerages, credit cards, and loans are offered by everyone from colossal money-center banks to small-town credit unions. Differentiating in such a landscape is challenging, and profit margins are often meager.

While SoFi shines with its tech-enabled, digital-only approach, at its core, it’s still a bank. And like any bank, once rapid growth slows, expanding further can become an uphill battle. Skeptics might highlight that a significant portion – 65% – of SoFi’s loan book consists of personal loans. This shift away from its original student loan focus raises red flags. Economically turbulent times could increase borrowers' default rates, potentially translating to hefty losses.

The Bull Case
Understanding the bearish arguments is crucial, as is grasping the bullish reasons. Since its inception in 2011, SoFi’s growth trajectory has been impressive. Even amidst rising interest rates and inflation, the momentum continues. In Q1 2024, revenue surged by 37%, and the customer base grew by an impressive 44% compared to the previous year.

SoFi’s absence of physical branches allows it to concentrate entirely on delivering an exceptional user experience, attracting affluent and tech-savvy clients. By rolling out new products primed for cross-selling, SoFi positions itself for continued growth.

Moreover, SoFi isn’t just chasing growth for its own sake anymore; it’s finally profitable. The company is at a pivotal point with two back-to-back quarters of positive net income. Major banking rivals have long demonstrated profitability, a sign of what SoFi could achieve. Plus, without the overhead costs of brick-and-mortar locations, SoFi gains an edge.

If you’re not convinced yet, consider SoFi’s current valuation. It’s trading significantly below its February 2021 peak, now at a price-to-sales ratio under 3, compared to the historical average of 4.2. This suggests potential for upward price correction as SoFi boosts revenue and accelerates earnings growth.