After being largely ignored by the market for several years, at least in terms of the stock price, SoFi's (NASDAQ: SOFI) stock performance is finally starting to reflect the bank's excellent growth momentum and future potential. However, if the bank keeps doing what it's doing, it could easily double in size, or more, in the next few years.
While it isn't the lowest-risk bank stock, SoFi could make a lot of sense from a risk-reward perspective. Here's a rundown of where the business stands now, some future growth catalysts to keep an eye on, and why the recent stock performance could be just the beginning.
SoFi in a nutshell
SoFi started as a student loan refinancing company but has since evolved into a fully functional online bank. It offers checking and savings accounts, brokerage accounts, personal loans, mortgages, credit cards, and more.
The progress has been impressive and continues to be. In the most recent quarter, SoFi added 756,000 new members, more in a single quarter than ever before, and is seeing especially strong momentum in its financial services products, including things like bank and investment accounts. Revenue increased 30% year over year, adjusted EBITDA grew 27%, and SoFi is a profitable bank, even on a non-adjusted basis.
SoFi's banking business is particularly impressive considering that it started from zero at the beginning of 2022 when the company obtained a banking charter. SoFi now has more than $24 billion in deposits, almost enough to cover the entire loan portfolio. The growing deposit base also could make SoFi a major winner of the Federal Reserve's rate cutting, as it currently has a 4.19% cost of deposits that could decline sharply over the next couple of years.
Lots of room to grow
While the progress is impressive, SoFi has a lot of optionality in its business. Its mortgage lending business could be a major growth driver as rates fall, and there are several types of lending and banking products that SoFi could choose to offer.
However, there are a few specific growth catalysts that could pay off in the intermediate term. One is the third-party personal loan origination business. SoFi recently signed an agreement to originate as much as $2 billion in loans for investors, and it has been actively referring applicants to partner lenders instead of using its own money. This could create a rapidly growing stream of capital-light income.
SoFi's credit card business is another key area to watch. The company's original credit card, which I have in my wallet right now, is a solid, but not exceptional, cash-back credit card. However, SoFi recently rolled out two new credit card products, and this could be just the beginning. For example, SoFi generally targets an affluent clientele in its personal loan and investment business, so a high-end credit card product could be a good fit.
These are just a couple of examples. But the point is that SoFi's growth story could still be in the relatively early stages.
The market is finally showing SoFi some love
SoFi's stock price has more than doubled over the past year, and to be fair, a valuation of about 2.8 times book value is on the high end for bank stocks. For context, JPMorgan Chase (NYSE: JPM) is the most expensive of the "big four" banks and trades for about 2.1 times book. However, with a sustainable 30%-plus growth rate and a massive future opportunity, SoFi could be worth every penny of its current stock price and then some. While I don't think SoFi will join the ranks of the big banks anytime soon, it could certainly multiply to several times its size within the next few years.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Matt Frankel has positions in SoFi Technologies. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
