Is SoFi stock a buy?

Despite the market rally in 2023 and the accompanying some good stocks offering investors some relief, many stocks are still well below their previous highs. SoFi technology (SOFI -1.38%) The stock rose 26% in January, but is down 73% from its high just two years ago immediately after its initial public offering (IPO).

At this price, it looks like an incredible deal. But only if you have what it takes to keep climbing. Otherwise, it may be a value trap. Let’s see if some analysis can provide an answer as to whether investors should consider SoFi stocks right now.

Why SoFi Excited Investors at IPO

SoFi stands for Social Finance, and when it first launched, it combined new technology with traditional services to present a new way of looking at finance. This is the very definition of a fintech company, providing modern financial services based on a digital infrastructure. Investors were impressed by the disruptive technology and huge market opportunity.

SoFi isn’t the only one in the game, but it’s carving out a niche in student loans. This has allowed the company to thrive while competing against major players in banking and lending who are also digitizing. At the same time, it acquired a banking license to acquire a traditional bank, adding banking services to provide a more complete financial experience for its mostly younger members.

Today, student financing is a major part of our business, but we also offer a wide range of services including personal banking, investments, credit cards and mortgages. Customers can more easily manage their financial needs with everything available from one convenient app.

Despite the economic downturn, growth has been and still is tremendous. Net revenue for the third quarter of 2022 took him to $424 million, up 56% year over year. His adjusted EBITDA increased his 332% to reach a record $44 million. Over 400,000 new members were added, up 61% from last year to bring him to 4.7 million.

This graph gives a good indication of how members are signing up for new products.

Adoption of SoFi products. Image Source: SoFi.

Why it looks a little different today

So what’s the catch? Unfortunately, if you dig a little deeper, there’s a lot to worry about at this point.

The net loss has ballooned from $30 million last year to $72 million this year. Management explained that much of it was due to warrant liabilities, indicating that it was a short-term shortcoming unrelated to the business, but even without them the loss would have been $20 million. prize.

Today’s economy is also unfriendly to companies like SoFi. One thing that is clear is that the student loan moratorium has put SoFi’s ability to collect loans on hold. It is also dealing with higher interest rates, increasing the risk of loan defaults and reducing demand for new loans. Last year’s acquisition of Golden Pacific Bancorp also gave us more flexibility and the ability to offer more services, but also increased exposure to some of the risks associated with banking.

Is the risk worth the reward?

Let’s go back to whether this is a good deal and look at valuations. SoFi is unprofitable and cash flow negative, so there aren’t many metrics that work here. The price-to-sales ratio has fallen to 3.7, a bargain for a growth stock. With a net worth of just over 1, this isn’t a particularly good bargain, especially considering he SoFi lacks the value and security of traditional bank stocks.

All these shortcomings make SoFi look very dangerous at the moment. The growth story looks promising, but there is so much variation across models that I wouldn’t recommend buying one.