This Magnificent Growth Stock Is Down 51%. Buy It Before It Sets a New All-Time High
20 hours ago
0 4 minutes read
The market has been doing some flip-flopping during the past two weeks, with the Nasdaq Compositeofficially in a correction and the S&P 500 entering one briefly. Investors are nervous about an economic slowdown, with new tariffs looming that could hurt company earnings.
Not to downplay what could significantly affect your portfolio, but most investors should be able to manage through the challenge. Older investors should have most of their funds in secure, dividend-paying stocks that can withstand brutal market conditions, and younger investors have the time to plow through and see their investments rebound and grow over many years or decades.
If you’re in the latter camp, you can follow Warren Buffett’s advice to be greedy when others are fearful and scoop up shares of excellent stocks on the dip. I recommend SoFi Technologies(NASDAQ: SOFI), which is 51% off of its peak, but may not stay down for too much longer.
SoFi operates a digital financial services app that’s drawing new members and growing fast. Although it began as a lending business, it has successfully expanded into many different products, leading to increased engagement and higher sales. Revenue increased 19% year over year in the fourth quarter and 26% in 2024.
It ended the year with 10 million members, a 34% increase, and it has expanded its member base 10-fold during the past five years. It added 1.1 million products in 2024, a 32% increase year over year. Almost 90% of that growth came from the financial services segment, demonstrating the benefit of transforming the platform into a full-service financial management app.
Chief Executive Officer Anthony Noto pointed out that the services segment is capital-light and fee-based, suggesting it has the potential for rising profitability and wide margins. Financial services segment sales increased 88% in 2024, and contribution profit swung from a $262 million loss to positive $307 million. That’s trickling down to the consolidated bottom line, which recorded a $341 million net loss in 2023 versus $499 million in net income last year.
The non-lending segments — which include what it calls tech platform, a white-label financial services infrastructure that management likes to think of as the Amazon Web Services (AWS) of the financial industry — are at a turning point in terms of their contribution to the whole business. As the lending business rebounds, it should continue to account for a large percentage of the total, but SoFi will be less reliant on it and less susceptible to interest rate changes.
Noto envisions SoFi becoming a top-10 financial institution. Although CEO hype is standard, this projection seems attainable. SoFi is growing at faster rates than most of the large legacy banks, and it would be a mistake to brush off SoFi’s appeal to its target market. The young professionals who are just starting out and looking for easy-to-use digital banking services are turning to SoFi, and as they climb corporate ladders and become more affluent, they’ll grow along with the bank.
For a few years already, it’s been SoFi’s ambition to use its cross-selling strategy to generate higher engagement, and it continues to load the platform with innovative and valuable features that set it apart from the standard online bank. It has provided access to initial public offerings (IPOs) that are usually closed to non-institutional investors and added non-traditional investing instruments to offer more options to its users.
SoFi is the 63rd-largest bank in the U.S. by assets, but 76% of banking customers are likely to switch banks if they find something they like elsewhere, according to Motley Fool Research. SoFi could easily climb up the list as it offers a better experience.
The market is volatile right now, and as a young growth stock, SoFi could be up and down over the next few years. It’s still highly reliant on its lending segment, which is vulnerable to changing interest rates. Although the company has been profitable for more than a year now, its earnings are not as reliable as those of the bigger banks.
However, management is focused on operational efficiency, and it’s coming through. More importantly, it’s offering services that target younger users, and they will drive its future performance.
At the current price, SoFi stock trades at a forward, 1-year price-to-earnings ratio of 27, which is an excellent deal. If you have a long time horizon, now is a great time to buy.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in SoFi Technologies. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
