My InvestorPlace colleague, Alex Sirois, set me up perfectly for my latest commentary on SoFi Technologies (NASDAQ:SOFI) stock.
Source: rafapress / Shutterstock.com
Sirois recently discussed the company’s state of flux. In particular, he had a lot to say about the company getting its bank charter.
“Even with the bank charter, SoFi remains a fintech company, which is important to note for a few reasons. First, large fintechs are under pressure as investors become more risk-averse and rotate out of growth stocks. Right now, they care about profits, not growth, and analysts estimate SoFi is at least a few years away from profitability,” Sirois wrote on Jan. 26.
I understand where Alex is coming from.
To many investors right now, a stock like SoFi is the financial services industry’s version of kryptonite. That said, I think it’s important to understand the difference between a business throwing ideas at the wall to see if they stick and one with a plan to become a consumer go-to for financial solutions.
I believe it is the latter. Here’s why.
SoFi Stock and a Meandering Road
SoFi stock is down almost 18% over the past five days and 50% since it started trading on June 1.
Admittedly, that’s not good for a business with so much potential. However, SoFi CEO Anthony Neto can do much about timing. We’re in the middle of a tech meltdown—possibly even a significant correction in the markets. As a result, SoFi was headed lower regardless of the news it might deliver.
My colleague makes an interesting observation about SoFi wandering from its initial student loan refinancing business. As if the company has committed some blunder by stepping out from under its narrow footprint.
However, it wouldn’t be the first company in American corporate history to expand its horizons.
Everyone laughed back in 2009 when McDonald’s (NYSE:MCD) got into coffee in a big way launching its McCafe’s from coast to coast. The refrain was that they’d never compete with Starbucks (NASDAQ:SBUX). Instead, McDonald’s predicted that coffee sales and other beverages would add $1 billion in annual revenues.
Even if McDonald’s came out today and said it only does half the amount it predicted back in 2009, I don’t think anyone’s questioning the move anymore. People love a coffee while having breakfast. So it was a no-brainer, just like the move into all-day breakfast.
Give Your Customers What They Want and Need
The key to a successful business is giving your customers what they want and need. But, unfortunately, anyone who’s followed the financial services industry for any amount of time knows that big banks don’t care about the little guy.
If not for neo banks and innovative fintechs like SoFi, does anyone think Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and all the other major players in U.S. banking would be cutting their overdraft fees? Not by a longshot.
While student loan refinancing has been a very lucrative niche for the company, the students eventually graduate. So by taking that network and helping them with other financial needs, SoFi is doing the exact opposite of the banks; it’s helping them.
From where I sit, SoFi doesn’t appear to be some scatter-brained adolescent wondering what they’re going to do with their life. Instead, it’s got a plan to deliver the products and services to make its customers financially self-sufficient and more confident about the future.
I don’t know about you, but I could care less if you call SoFi a bank, fintech, or even a financial services company. In reality, it’s all three, and that’s not a bad thing, in my opinion.
The Bottom Line
In mid-January, I said that SoFi stock could hit $30 in 2022. However, I was sure that it would do so with a significant amount of volatility.
Therefore, I was only suggesting aggressive investors buy in the mid-teens. Now that it’s lower than $12, my stance on SoFi stock still hasn’t changed.
It’s an excellent long-term buy for anyone who believes profitability will come in the future. I do. I’m not sure my colleague shares my opinion. And that’s OK.
SoFi didn’t get a bank charter because it wanted to open up physical branches. Instead, it did so to grow closer with its 2.9 million members.
It’s a relationship I expect to be profitable for both parties in the future.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
Credit: Source link
