SoFi’s stock is trading around $6.88, well below where the stock closed on its trading debut in June 2021. Current secular trends prove the company is undervalued and poised for a strong rebound in the coming months. Here are three reasons investors should be bullish on SOFI.
Student Loans to Boost SOFI Stock
In a prior article I mentioned how student debt would be a catalyst to bring shares up to $16. Hence, Sofi’s student loan business is a key reason to be bullish on share price growth.
SoFi is one of the largest providers of student loan refinancing in the U.S., with billions of loans originated since the platform’s inception. This part of Sofi’s business has been its most profitable for a while until a COVID-era federal moratorium put a pause on student debt repayments.
Because of this, Sofi’s growth and profits in this segment took a beating. The moratorium harmed financial results so much that the company tried suing to get the moratorium rescinded.
However, as payments resume, borrowers will likely seek more refinancing options to lower their interest rates and monthly payments. This will create a huge opportunity for SoFi to grow its student loan business and generate more revenues and profits in the long run.
Expanding Profitability Margins
Because SoFi has a significant lending business, it’s important to look at both EBITDA margins and net interest margins. Net interest margin is the difference between interest earned on interest bearing assets (e.g., student loans and mortgages) minus any interest paid for deposits or other liabilities divided by the total number of interest-bearing assets.
As nominal interest rates have gone up, SoFi, like many other financial institutions, has improved its net interest margin. In SoFi’s latest fiscal quarter, for example, the company saw NIM improve from 4.38% in Q1 2022 to 5.99% in Q3 2023.
Similarly, SoFi has also achieved record adjusted EBITDA of $98 million, up 121% year-over-year, representing an adjusted EBITDA margin of 18%, up from 10% in Q3 2022. These critical metrics improving significantly overtime has shown the business can continue growing even during times of economic uncertainty.
SoFi Executes on Strategic Initiatives
SoFi has executed well on strategic initiatives in the past and could continue to do so in the future. In 2022, the financial group pursued and received approval for a national bank charter, which would help lower its cost of capital, increase its lending capacity, and enable it to offer more products and services to its members.
While pursuing a national bank charter stands in stark contrast to how SoFi positioned itself when the company first got started, the choice is perhaps a pragmatic one which could help low consumer costs in the long run, thus helping the business to expand in the future.
SoFi is also expanding its international presence through its Galileo product, which the company brought onto the platform via an acquisition back in 2020. Galileo provides technology solutions to fintech companies around the world. The product added around 8 million new accounts in Q3 2023, increasing 10% on a quarter-to-quarter basis.
These successful pursuits show the platform not only has the willingness to grow but also has the capability and correction execution to do so.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.