Should you buy SoFi Technologies when it’s trading below $10?

THE S&P500 The index continues to reach new record highs in 2024, pushed higher this month by enthusiasm over the Federal Reserve’s recent cut to the federal funds rate. Many stocks saw significant gains following the news, but SoFi Technologies (NASDAQ:SOFI) is a title that has not yet benefited.

SoFi has done a solid job diversifying its business over the past few years. Still, its stock price remains down 51% from early 2022, just before the Federal Reserve began raising interest rates. The company has been adding new deposits at a staggering pace, but concerns persist about its credit portfolio.

With interest rates falling, investors may want to buy SoFi stock while it is trading below $10 per share. But they should first consider the following.

SoFi’s multi-year transformation

SoFi stock’s recent poor performance doesn’t represent the company’s progress over the past few years. This fintech got its start in the 2010s as a student loan specialist that used technology to manage the student loan process more efficiently. In 2022, the company acquired Golden Pacific Bancorp, giving it a banking charter that allows it to hold customer deposits and loans.

The move came at a good time for SoFi, ahead of the Federal Reserve’s aggressive interest rate hike cycle, and it was able to take advantage of the higher interest rate environment. Last year, SoFi raked in nearly $1.3 billion in net interest income, an increase of more than 400% from 2021. Solid growth continues through the first half of this year , with net interest income increasing 55% year over year to $815 million.

SoFi’s deposit base has also grown at an impressive rate. Since Golden Pacific’s acquisition, its total deposits have grown to nearly $23 billion, driven by its high-yield savings accounts which currently offer an annual percentage yield (APY) of up to 4.5%.

Although SoFi has made progress in expanding its business, it has been a cash-burning operation until recent quarters; last year it lost $301 million. However, things are starting to improve. SoFi reported net income of $105 million this year, up from $82 million over six months last year, and has made a profit for three consecutive quarters.

SoFi’s desire to become the AWS of fintech

SoFi’s banking business continues to grow steadily, but one aspect of its business that makes me optimistic is its technology platform. Over the past few years, the company has invested heavily in Galileo and Technisys to build its technology platform to help deliver banking products to non-bank businesses.

Galileo provides back-end infrastructure to fintechs without a bank charter, allowing them to process payments and provide other banking services through SoFi. Technisys replaces decades-old legacy systems that made rapid innovation difficult. Technysis can help support multiple products at once, runs on the cloud and allows banks to process and analyze data in real time. With this technology stack, SoFi dreams of becoming the Amazon Fintech Web Services (AWS).

Image source: Getty Images.

The technology platform has become a business for SoFi that can also be a source of stability through its use of long-term contracts. In the first half of this year, the technology platform’s net revenue was $190 million, up 15% from last year, and its contribution profit margin reached a solid 33%.

What’s next for SoFi

Some concerns remain about SoFi’s lending business. In the second quarter, net charge-offs on its $16 billion personal loan portfolio increased to 3.84%, up from 2.94% a year ago. Additionally, lending activity has fallen this year “in light of macroeconomic uncertainty,” according to CEO Anthony Noto earlier this year. Investors will want to continue to monitor net charge-offs, which could impact earnings if they continue to rise.

However, with interest rates falling, SoFi is well-positioned to benefit. On the one hand, Noto said SoFi will continue to offer higher interest rates than its competitors through its loan portfolio. This should help it continue to expand its deposit base, giving it the capital to hold more loans on its books.

Lower interest rates could also boost its lending activities. According to Federal Reserve data, personal loan interest rates increased from 8.73% in 2022 to 12.49% last year. Further rate cuts in 2025 should help reduce borrowing costs and create a more attractive refinancing environment for consumers.

Is SoFi a buy?

SoFi’s earnings have improved, and analysts who cover the stock expect revenue growth to continue over the next few years. This year, they forecast SoFi’s net income to be $173 million, followed by $320 million in 2025 and $577 million the following year.

Its financial results are improving and lower interest rates should be another positive factor for its lending business. With several growth levers in place, I think now is the perfect time to grab some fintech share.

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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. Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool posts and recommends Amazon. The Motley Fool has a disclosure policy.