SoFi has been a divisive stock among investors.
SoFi Technologies (SOFI -1.16%) shares were falling following its third-quarter results despite the financial-service company posting strong results and issuing upbeat guidance. The stock had made a huge month since the start of October but is up just modestly on the year.
Let’s take a closer look at the company’s recent results to see if this is a buying opportunity for investors.
Improving trends
SoFi called its Q3 the strongest in its history, and the results were pretty impressive. The company’s revenue jumped 30% to $697.1 million, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 90% to $186.2 million.
Its tangible book value, meanwhile, rose 16% year over year to $4 per share. It grew by 2% sequentially.
The company’s results were led by its financial services segment, which saw revenue more than double to $238.3 million. The segment’s contribution profit soared from $3.3 million to $99.8 million.
The growth was powered by its loan platform business, which is essentially a lead-generation business where it refers borrowers to other parties. The business saw its platform-revenue fees surge 5 times to $55.6 million. The segment also saw interchange revenue skyrocket by 211% to $12 million.
Net-interest income (NII) in the segment, meanwhile, surged 66% to $154.1 million. SoFi said this was driven by increased customer deposits. Overall, it saw a 33% increase in the number of financial products being used. Its annualized revenue per product rose 53% of $81.
For its lending segment, revenue increased 14% to $396.2 million, with net-interest income (NII) rising 19%. Its contribution profit jumped 17% to $238.9 million. Total loan-origination volumes jumped 23%.
Technology-segment revenue, meanwhile, climbed 14% to $102.5 million. Contribution profit rose 2% to $33 million. Total clients jumped 17% to 160.2 million.
From a growth perspective, it appears everything was working in SoFi’s favor this quarter; all results across the board were strong.
Image source: Getty Images.
One knock on SoFi had been its credit metrics, but the company saw its charge-off rate decline to 3.52% from 3.84% in Q2. SoFi did sell some later-stage delinquencies but said that, if it hadn’t, its all-in annualized net charge-off rate would still have dropped from 5.4% in Q2 to 5% in Q3.
Overall, it said its personal loan borrowers have an average income of $164,000 and weighted-average FICO score of 746. Student loan borrowers, meanwhile, have an average income of $135,000 with a weighted-average FICO score of 765. As such, it does not appear that the company is lending to subprime borrowers to help fuel its growth.
Looking ahead, SoFi forecast full-year adjusted-net revenue of between $2.535 billon to $2.55 billion, representing growth of 22% to 23%. This was above its prior outlook for revenue between $2.43 to $2.47 billion, equal to 17% to 19% growth. It also upped its adjusted EBITDA guidance to a range of $640 million to $645 million, up from its previous view of $605 million to $615 million.
Is it time to buy the dip?
At a forward price-to-earnings (P/E) ratio of 45 times and a price-to-tangible book value (P/TBV) of about 2.6 times, SoFi is not cheap based on traditional metrics. However, the company is growing strongly, and its credit quality improved sequentially.
SOFI PE Ratio (Forward 1y) data by YCharts.
Overall, the stock dipped despite what was a great quarter. There had been worries about credit quality and decelerating growth, but growth accelerated and credit quality improved during the quarter. Meanwhile, the company should be in a good position moving forward, with the Federal Reserve at the start of a rate-cutting cycle and the economy holding up well. That should be a strong combination for a company involved in both originating its own loans as well as generating leads for other lenders.
That said, this is not a cheap stock, and it would be vulnerable to any weakening in the economy. As such, I’d view the stock more of a hold at current levels.
