It was a volatile development, but investors should be aware of that SoFi Technologies (NASDAQ:SOFI) has benefited from the broad market recovery. Shares of this banking innovator are up 64% since the start of 2023.
However, this is Fintech stock is still 71% below its peak price. And its current market cap of $8 billion puts it in the mid-cap range.
I believe SoFi definitely represents a solid long-term investment opportunity. But can the stock make you a millionaire?
SoFi is taking over a huge industry
One of the reasons I think SoFi should be on everyone’s radar is because it has had remarkable success in disrupting the massive financial services sector. The company was founded in 2011, at a time when consumers may have been skeptical of the banking industry following the Great Recession. Additionally, smartphones were still in their early stages of adoption, making mobile banking a novel activity.
Capitalizing on this powerful trend over the last decade has resulted in SoFi now attracting a user base of 7.5 million customers. But that’s a drop in the bucket compared to what could really be considered the company’s total addressable market opportunity.
For what it’s worth, JPMorgan Chase, the leading bank by assets in the United States, says it serves 80 million consumers. This means SoFi has huge growth potential, which is definitely a positive when thinking about its ability to make its shareholders millionaires in the future.
The company succeeded by taking a technology and digital-first approach and focusing intensely on delivering a better user experience. Encouraging customers to use more products over time is an important strategic pillar.
In the fourth quarter of 2023, the average customer used 1.5 products, a number that has continued to rise in the past. While someone might initially be interested in SoFi because of its above-market savings rate of 4.6%, they might then be incentivized to open a brokerage account or take out a mortgage. This can lead to higher income in the long term.
Throughout its history, SoFi has been a money-losing company. That changed last quarter when the company reported positive quarterly generally accepted accounting principles (GAAP) Net income. Management is confident that its bottom line will grow rapidly in the coming years, reflecting SoFi’s size and operational influence. Combine revenue growth with profit growth and investors have a lot to look forward to.
SoFi’s path to a seven-figure position
Even after the stock’s rise over the last 15 months, it’s not expensive. In fact, it could be an attractive valuation. Shares trade at a Price-sales ratio from 3.4. well below their historical average.
In my opinion, SoFi seems like a smart stock to buy right now. The company focuses on its users and their needs and is capable of greatly increasing sales and net income in the future.
I believe that people who are able to invest a larger initial capital while having a very long-term time horizon could actually become millionaires from this venture. However, it is important to understand important risk factors.
Impression Keep risk in mind is SoFi’s loan book, which consists primarily of personal loans. How these develop in a possible recession scenario should be closely monitored. The hope is that default rates will be kept under control.
Earlier, I praised SoFi’s ability to successfully innovate in a legacy industry. That deserves recognition. However, the threat of competitive forces should remain on shareholders’ minds. At their core, financial services are basically just standardized offerings. It is not uncommon for people to use multiple banking institutions for their different needs. SoFi must continue to find ways to attract more users.
Looking at the situation today, I remain optimistic about this business in the long term. Investors could just reach the seven-figure milestone with this investment.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
Is SoFi a millionaire maker? was originally published by The Motley Fool