Is SoFi stock a buy?

SoFi technology (Sophie 0.73%) As of December 22nd of this year, it has risen 111%, showing an incredible rise. This is an impressive increase, especially considering the high interest rates seen in the United States.

Will strong returns continue in 2024? There are good reasons for investors to buy this digital. bank stocks As we welcome the new year, there are also factors that make you turn away.

Let’s take a look at the positive and negative arguments for investing in SoFi.

Provide a better experience

SoFi offers a variety of financial services products. Focusing on providing a great experience is a good strategy in the banking industry. The banking industry has long been ripe for young competitors to challenge incumbents with simple, innovative solutions. One thing that stands out is that they embrace an online-only model. There are no physical branches.

The growth has been impressive and continues to shine. In the first nine months of 2023, net revenue increased 35% year over year. Posting these kinds of gains is notable. federal funds rate This is a level not seen in 22 years.

In what has been a tumultuous year for the industry, a clear indicator of SoFi’s success is deposit growth. March’s local banking crisis left consumers questioning whether their money was safe with their banks, and SoFi appeared to benefit from the confusion, with deposits now more than double what they were at the end of last year. Its digital-first focus makes it easy for customers to move their money, and it has expanded FDIC insurance up to $2 million to attract savers to its platform.

A key part of SoFi’s strategy is to target younger customers as well as high-income customers, building lifelong banking relationships that can become profitable over time. For example, someone who starts out with student loans might eventually open a credit card through SoFi and then take out a mortgage.

Risk factors to keep in mind

Because SoFi is an early-stage company with approximately 12 years of operating history, it is difficult to say whether it has made any progress. economic moat. Although it has proven the benefits of focusing solely on digital and has achieved tremendous growth, we do not believe that SoFi is completely safe because the banking industry is so competitive. We see every major financial institution investing heavily in technology and digital capabilities, which only makes the situation more difficult for SoFi.

SoFi believes the fact that it’s slowly building relationships with younger consumers is creating moat potential. As younger customers become wealthier and their financial needs expand, they may become more dependent on SoFi’s products, creating switching costs. This is something to watch for in the coming years.

Management expects SoFi to produce the first products. GAAP Profit this quarter. This is a huge milestone as it represents a financial turning point and progress towards sustainability.

However, the lack of a long and consistent track record of positive net income can be seen as a red flag. Especially if a recession is coming soon., SoFi may be overexposed. As of September 30, 69% of loans were personal loans. This is risky because defaults could increase if many borrowers find themselves in distress.

Overall, it’s good to know the risks here, but I think SoFi’s upside carries a lot of weight, so I don’t think it’s a bad idea to start a small position in the stock.