Shares of SoFi (NASDAQ:SOFI) are up by more than 165 percent in the past 12 months, driven by rapid improvements in the business’s fundamentals but is SoFi still a buy today, or have the shares become too expensive after the recovery of the past several months?
How SoFi Has Pivoted From Student Lender
Early on, SoFi was mainly involved in student loan financing, a narrow niche that limited its scope and put it under significant pressure when 2020-21 era lockdowns paused federal student loan repayments and severely disrupted college admissions.
At particularly low points in 2022-2023, these lingering pressures, combined with rising interest rates, drove SOFI shares to trade below $5.
Today, however, SoFi takes a much broader approach to its financial services. In addition to its longstanding loan business, SoFi now handles products and services that include banking, investment accounts, credit and debit cards and various other financial tools. With this approach, SoFi has gone from being primarily a loan origination business to becoming deeply integrated within its customers’ financial lives. This has also allowed SoFi to move to a more fee-based revenue model that could prove more profitable over time.
SoFi has been especially successful in gaining members among younger generations with its digital platforms and widespread social media marketing. These younger consumers, many of whom are just hitting their prime earning years, could prove to be a long-term growth engine for SoFi as their financial needs become more complex and their incomes increase.
SoFi’s Impressive Turnaround
Emerging from the turn of the decade, SoFi faced significant pressures on its business as interest rates rose. Now, thanks in large part to its diversified offerings, SoFi is mounting a very credible turnaround. Q2 provides an impressive example, with adjusted net revenues rising 44 percent to $858 million and net income more than quadrupling from the year-ago period to $97.3 million.
Aside from top and bottom line financial metrics, Q2 also provides a good look into how SoFi has been able to grow through both new customer acquisition and expanding the range of product offerings available to its existing customer base. Total members reached 11.7 million, 34 percent higher than the year-ago quarter. At the same time, 35 percent of the new products opened during the quarter were opened by existing customers. Cumulatively, these trends combined to allow SoFi to increase its fee-based revenue by a staggering 72 percent to a record of $378 million.
Loan originations are also recovering rapidly, with SoFi originating a record of $8.8 billion in new loans during Q2. This included significant growth across personal, home and student loans. While fee-based revenue is likely to make up a progressively larger share of SoFi’s revenue mix going forward, the recovery of its loan business is yet another encouraging sign for investors.
Importantly, Q2 wasn’t a standalone period of success. SoFi has been able to deliver 13 quarters of consecutive revenue growth and seven quarters of earnings growth. Looking back over the trailing 12-month period, the business has been able to deliver a net margin of 13.5 percent, as well as ROIC and ROE of 5.7 percent and 8.8 percent, respectively. SoFi’s balance sheet is also still quite strong, with only about $3.9 billion of debt on its books against assets that total over $41 billion.
While it’s still only a few years since SoFi reached its lowest point, the indications are that the business is in the process of mounting a lasting recovery. SoFi’s recent profitability is of particular importance, as the business wasn’t profitable earlier in the 2020s, even before the share prices collapsed. The establishment of what appears to be sustainable profitability, in conjunction with strong ongoing revenue growth, leaves SoFi looking much more attractive as a business than it has been up to now.
What About SoFi’s Valuation?
One issue investors may find with SoFi at the moment is the fact that rebounding share prices have brought it back to a rather high valuation. SOFI shares are now priced at 58.5 times trailing 12-month earnings, 8.1 times sales and 21.7 times operating cash flow. SoFi has also moved far ahead of the consensus analyst price target of $23.25, which implies a downside of 21 percent from the last price of $29.01. The preponderance of analysts also now rate SoFi as a hold, though five of the 19 analysts covering the stock still have buy ratings on it.
This valuation becomes a bit easier to stomach, however, when one considers the very high rate of earnings growth SoFi is expected to deliver over the next few years. On a 3-5 year basis, SoFi’s EPS is expected to grow at a compounded rate of 26.5 percent. Starting from the current trailing 12-month EPS of $0.48, this would mean that SoFi could be earning as much as $1.55 per share in five years.
Though this still puts SOFI at the fairly premium price of 18.7 times its potential five-year earnings, ongoing growth could go quite some way toward justifying the price tag that SoFi commands today. Even so, SoFi may be too highly priced for investors pursuing substantially undervalued shares.
So, Is SoFi a Buy?
Even with a fairly high price tag, SoFi’s strong execution, improving fundamentals and potential for future growth could make it a good candidate to buy and hold long its long-term compounding potential. The stock appears poised to keep moving gradually upward as its earnings and revenues grow, especially if the Federal Reserve continues to reduce interest rates as expected going into 2026.
It is important to note, however, that SoFi’s current valuation puts significant forward growth demands on the business. While there are decent indications that SoFi could deliver, the stock does present a fair amount of risk if economic conditions or other factors slow SoFi’s expected growth rate. As such, SoFi may be less appealing to risk-averse investors or those closely focused on buying stocks at sharp discounts.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.