Skip to main content

Stay Away From SoFi Stock? This Key Metric Says It's A Buy

In freefall since November last year, SoFi stock has been leaving many disappointed bagholders by the wayside. But according to one key metric, investors should buy SOFI’s recent dip.

During March, SoFi  (SOFI) - Get Free Report stock hit its all-time low. Heavy selling pressure on fintech stocks - spurred by macroeconomic uncertainty, geopolitical turmoil, and rising interest rates - did not spare this personal finance company. News about another extension of the national student loan payment moratorium SoFi stock also worked to drag the stock down, just after it had started to recover from its nadir.

However, despite all the bearishness, SOFI has continued investing to become a major player in the emerging financial technology (fintech) market. And the company's management is more bullish than ever on the company's future.

Figure 1: Stay Away From SoFi Stock? This Key Metric Says It's A Buy

Figure 1: Stay Away From SoFi Stock? This Key Metric Says It's A Buy

(Read more from Wall Street Memes: Aterian Stock: The Latest Short Squeeze On The Block)

Insiders Are Buying Lots Of SoFi Stock

One metric that can be very telling as to a company’s future prospects is insider transactions. When a company’s insiders snap up shares in significant amounts, that’s usually a positive sign. It implies that those who know a company the best (the ones who run it) believe their shares are undervalued by the market.

In the case of SoFi, insiders have been buying shares on a massive scale over the past year.

See the chart below (where each green bar represents buying transactions while each purple bar represents selling transactions).

Figure 2: SoFi insider transactions.

Figure 2: SoFi insider transactions.

In the last three months alone, between SoFi directors and CEO Anthony Noto himself, some $8.87 million worth of SoFi shares have been bought by insiders. It seems SoFi higher-ups are doing everything possible to take advantage of the company’s 65% dip since November of last year.

A Handful Of Other Reasons To Buy

The bullishness that SoFi insiders have in their own company can easily be justified. SoFi is a fintech growth stock that is investing heavily in becoming a "one-stop-shop financial services platform.”

CEO Anthony Noto sees SoFi operating in the fintech space in a similar way to how Amazon Web Services (AWS) operates in other markets in its niche - a dominant player taking up the lion's share of the market.

SoFi’s billion-dollar acquisition of Technisys, a cloud-based company focused on core banking services, furthers their strategy of building a BaaS (banking-as-a-service) business. With this acquisition, SoFi plans to reduce future operating costs and promote a wider range of services to its customers.

Another feather in SoFi’s cap is its recent bank charter approval. At the beginning of the year, SoFi received regulatory approval to officially become a bank. This allows for a transition in the company's business model. No longer just a lender, SoFi - as a bank - will be able to offer a wider range of financial services to its customers.

The company’s bank charter approval will lead to a diversification of its business model. Currently, more than 80% of SoFi’s revenues come from its lending business. By accessing new revenue streams, the company expects its top line to multiply sixfold by 2025.

Figure 3: SoFi's diversified revenue streams.

Figure 3: SoFi's diversified revenue streams.

Short Term Headwinds Should Be Ignored?

On a short and medium-term basis, SoFi may continue to suffer from market volatility. Recent news about President Biden extending the student loan payment moratorium has caused SoFi to once again plummet and has worried Wall Street analysts, too. It’s not hard to see why - SoFi was forced to downwardly revise its 2022 sales guidance to $1.47 billion from $1.57 billion.

CEO Anthony Noto issued a statement after the moratorium extension was announced. He said the company’s difficulties in the student loan refinancing business should come as no surprise. Since Covid hit, the company has only been doing about 50% of its normal student loan refinancing. Yet the CEO’s optimism remained untarnished.

"SoFi has done an outstanding job achieving record financial results, member and product growth and consistent profitability, despite the negative impact of the extended student loan payment moratorium. And we will work diligently to continue that trend in 2022." said Noto.

While this recent development is bad news for SoFi’s 2022 guidance, I believe that a more cautious approach, focusing on the long-term trends, will pay off. And here, SoFi’s future hinges on its efforts to diversify its revenues beyond lending.

According to data from Lightyear Capital, embedded finance is expected to grow by close to 1,000% by 2025, from the current $22.5 billion to almost $230 billion. Embedded banking is the integration of banking services with a company's marketplace and is set up through a banking service provider (BaaS). SoFi is doing the work and making the investments to become a beneficiary of this market’s growth - but it will take some time.

SoFi’s road to gaining investors’ confidence will no doubt be arduous. The company needs to prove that its billion-dollar investment in its service platform model will generate real returns.

But insiders at SoFi seem to be confident in the company’s future. And perhaps there is no one better than the company's own management to know just how much potential SoFi has.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)