Is SoFi a Millionaire Maker?

Since its founding in 2011, SoFi Technologies (SOFI 1.82%) has rapidly burst onto the scene to become a budding financial services provider. The tech-enabled banking platform continues to grow at a healthy pace, and it’s turning the corner financially. But shares remain well off their record high.

Can this fintech stock become a millionaire maker? Here’s what investors with those expectations need to know about SoFi’s prospects.

Disrupting the banking industry

SoFi is a financial services provider, but it doesn’t own or operate any physical bank branches. Instead, various offerings, like bank accounts, loans, credit cards, and insurance products are all offered via the company’s mobile app. SoFi has positioned itself to succeed in a hyper-competitive banking industry. It focuses on leveraging the popularity of smartphones and the internet to provide a superior user experience in a market that’s not known for that.

Growth has been superb. SoFi generated $599 million in revenue in the second quarter (ended June 30), up 421% from four years ago. And the current customer base of nearly 8.8 million is more than sevenfold higher than in the same period of 2020. The business is clearly resonating with consumers, particularly younger and more affluent ones.

It’s not hard to believe that SoFi still has a lot of room to grow, given the massive size of the banking industry. “Our growth in members and products will drive our financial growth for years to come,” CEO Anthony Noto said on the Q2 2024 earnings call.

Wall Street consensus analyst estimates call for revenue to rise at a compound annual rate of 17.8% between 2023 and 2026. While that would represent a slowdown from the gains registered in previous years, it’s undoubtedly still a robust outlook that prospective investors should be excited about.

Generating positive earnings

You typically see fast-growing tech-enabled enterprises post ongoing net losses. The market is sometimes fine with this because these businesses promise large earnings in the future. Luckily, SoFi is already profitable. It has reported positive earnings based on GAAP net income in three straight quarters.

Management expects things to improve dramatically. They believe SoFi will generate earnings per share (EPS) of $0.68 (at the midpoint) in 2026. That would be substantially higher than the $0.09 to $0.10 projected for this year. And after 2026, the forecast is for EPS to rise at a 20% to 25% annualized pace.

Of course, any leadership team can and does throw numbers out there to keep its shareholders happy. But there are reasons to believe the bottom-line outlook is realistic.

As I mentioned before, SoFi operates a digital-first business model. Consequently, it should be able to scale in a profitable manner as it grows its user and revenue base. Product development as well as sales and development expenses should be largely fixed and should not increase proportionately as SoFi gets bigger. That can lead to impressive earnings down the road.

Investor setup

SoFi currently trades 57% below its all-time high, made in February 2021. It’s been a disappointing journey since that peak. But there has been a renewed sense of optimism in the market. Shares have soared 44% since the start of October (as of Oct. 25).

However, the current setup is still compelling for investors, particularly when you consider the trajectory of EPS in the years ahead. The price-to-sales ratio of 4.7 represents a 17% premium to SoFi’s historical average multiple of under 4.1, but this is still a favorable time to get involved.

SoFi looks like a smart buying opportunity today. And given that it appears to have a long runway of growth, investors who are patient and can invest a larger sum of money are in a good position to one day potentially become millionaires from owning this business.