U.S. stocks experienced a surge on Wednesday as the Federal Reserve maintained current interest rates and hinted at three rate cuts in the coming year. Among the standout performers was SoFi (NASDAQ:SOFI), witnessing an impressive 12% increase in its share value.
Despite a doubling of SoFi shares this year, the stock still hovers below its 2023 highs. The question arises: Will SoFi continue its upward trajectory in 2024 as the Federal Reserve adopts a more dovish policy stance? This article explores the potential scenarios.
Fed’s Rate Cuts and SoFi’s Prospects
SoFi is optimistic about benefiting from the Federal Reserve’s anticipated rate cuts. During the Q2 2023 earnings call, CEO Anthony Noto expressed excitement, stating, “We’re excited that when rates start to decline and other banks can’t maintain the level of APY that we can, how competitive we can be versus them.”
Noto previously highlighted the company’s potential to gain market share during rate declines, leveraging its impressive spreads between deposits and personal loans. SoFi’s strategic move to obtain a bank charter in 2022 through the acquisition of Golden Pacific Bank has proved instrumental. This allowed SoFi access to low-cost customer deposits, significantly improving its net interest margins.
As interest rates fall, SoFi’s ability to offer higher interest rates on deposits positions it favorably to attract more deposits, covering a larger portion of its loans.
SoFi’s 2024 Growth Outlook
Although SoFi’s stock has witnessed substantial growth in 2023, it remains below its SPAC IPO price of $10 and its all-time highs. However, the company has met some financial forecasts, exceeding its 2022 revenue projection of $1.5 billion.
Analysts anticipate 2023 revenues to reach $2.05 billion, aligning closely with the company’s 2021 prediction. SoFi’s management remains optimistic about achieving GAAP profitability in Q4, signaling a move towards sustainable profitability.
In Q3, SoFi set a new record by adding approximately 717,000 new members, bringing the total to nearly 7 million. This remarkable growth, coupled with the resumption of student loan repayments, positions SoFi for steady business expansion in the upcoming quarters.
While analysts project a moderation in revenue growth to around 24% in 2024, SoFi remains a strong contender for sustainable profitability in the fintech sector.
Valuation and Wall Street Insights
Currently trading at a reasonable next 12-month price-to-sales multiple of 3.5x, SoFi’s valuation appears promising. Analysts, however, rate the stock as a “Hold,” with only 5 out of 18 recommending it as a “Strong Buy.” The mean target price of $9.25 suggests a marginal upside, while the Street-high target of $15 indicates a potential 63% increase.
SoFi’s ability to grow its top line without compromising credit quality and profitability adds to its appeal. Addressing concerns about the valuation of its personal loan portfolio, SoFi has strategically sold these loans at a premium.
Despite Wall Street’s cautious stance, influential figures like Cathie Wood of ARK Invest see value in SoFi stock, gradually increasing their holdings. While opinions may differ, SoFi appears to be a promising buy for 2024, offering growth potential and sustainable profitability.
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