Is SoFi Stock a Buy Today? We Debate!

SoFi is one of the most popular stocks on the market. But Lou, fun fact for you, this stock is down 2.5% over the past 5 years. It's been incredibly volatable. Great winner if you bought it at the right time. But it's just crazy for all the attention that SoFi gets. The stock has gone nowhere over that time. >> Yeah, it's and that doesn't look like a bank stock chart, does it? And you know, this is sort of the first question about it. Are we talking about a bank or not? Because they they have technologies in the name. uh they are they tell me they are a digital financial services super app but then you look at what they do and what they do is provide checking and savings accounts they provide credit cards they do automated investing credit monitoring uh personal loans student loans mortgages kind of sounds like a bank and you know so maybe the total return kind of feels like a bank but man they take a wild ride to get there >> well let's get to let's outline what this business is because I think this is important uh the chart here we have is the number of members and the number of total products. So when you look at their earnings report, this is one of the things they always report first and this is what is really different than most traditional banks. Most traditional banks are going to be growing at a compound annual growth rate of between 40 and 50% and they've been actually pretty consistent with that even recently you know well into the 30% uh compound annual growth rate. So it definitely is a growth company whether or not it is a bank but the products I think this is important to understand. So they break it into three segments. Lending, technology services, and then financial services. So the lending products is actually where they started. So it was the loans that nobody else wanted to give. Personal loans, student loans, and then they only recently have they really gotten into things like mortgages. So are you saying that you know that is a fine place to start but you've really got to mature as a business to become to be kind of taken seriously in that financial services and maybe should be valued more like a bank if you are taking those bank type risks with those kind of loans that most banks don't want to take well yeah I you know they have maximized for something and they've gotten the results for that their growth is impressive by banking standards it's pretty shallow growth one thing that stands out about that members the total products is that total product number is barely at right now two per member or something. That's that's miserable. >> It's less than two. Yeah. >> Yeah. That that's miserable for a bank. Your your old-fashioned MPA community bank down the street is doing better than that. And definitely the big banks, the ones they'd like to be, you know, in the conversation with do a lot better than that. But that isn't what they have stressed. They have stressed using pricing to grow members as fast as they can. And it has worked out for them. And that's not a criticism. It is just what it is. They're they're coming up on the law of large numbers. You can't just use pricing to continue to grow indefinitely the way they have. So they have to layer on more products and they have to focus more on growing that number of products per customer to community bank standards if not big bank standards. Can they do that with pricing? Maybe. But will that affect profitability? and does some of the kind of the realities of banking, the more they try and at layer on banking products, the more they're going to look like a bank and the more they're going to have to compete with other banks. I think there that's the real conundrum as far as valuation. It doesn't make the company any less good. I think it is it's good to see the company maturing in that way, but I think investors have to be aware of sort of the just the real world ramifications of that. Now, let's let's dig into some of those specifics with the company and how they report their earnings. What we're looking at here is the lending revenue and lending contribution profit. So, this is what they report each quarter uh for lending technology services and then financial services. So, lending revenue continues to grow, continues to be solidly profitable. This is where you're going to get a lot of the conversation. If you listen to a conference call, a lot of the conversation is very bank-like. You know, what is the default rate? What sort of interest rates are you charging? What's the spread? Is this an area where you look at what SoFi is doing? And and by the way, they also have this loan platform business where they're they're, you know, putting giving loans to somebody and then actually selling it directly to to an investor. That revenue doesn't fall in in this segment. It actually goes into the financial services segment. So just wanted to highlight that. But it's taking some of the risk off the balance sheet. Makes it does make it a little bit more like a technology company. But when this lending continues to grow in this way, you do need the capital to do that. And then you are taking on bank-like risks. So is this what you're saying is that hey, if it looks like a bank, you're lending like a bank, you're taking bank-like risks, you should probably be valued like a bank at some point. And look at at a fast growing bank. And yeah, they do have the they do sell loans. We have a name for that in banking. It's warehouse banking or wholesale banking that's been around since the 50s, too. So, you know, they're doing with technology, but a lot of what a lot of what I honestly, and this isn't just SoFi, but a lot of what fintech kind of passes off as innovation looks like better marketing or new delivery channels using technology to their advantage. Those are good things and they can justify some sort of a premium because they can just they can lead to growth. But yes, at the end of the day, this is banking. This is buying and selling money and making money off the spread. We have a way to price that. We've been doing that for hundred something years and there's a lot of good companies that do that along with them. So I do think we should, you know, kind of give credit for their growth characteristics. We should understand how they got there in terms of pricing, but we, you know, we need to both give them credit for that and understand at the end of the day, these are businesses we understand and we know how to value. Let's go through the other two segments because I think this is important to understand too. Technology uh platform business. You can see here they lost one c big customer. I believe that was Chime uh at the end of 2025. That's why you see the reduction in revenue recently. But what this essentially is is kind of banking services that they're white labeling to for somebody else. So I think H&R Block is one of their customers. If you have one of those, you know, high yield savings account on on H&R Block, it's not actually H&R Block who's providing that yield. It's SoFi, it's just white labelled as a SoFi product. How do you view this kind of a product? Because I think this is one area where a lot of investors think, hey, this is a big growth market, but if you actually look at the results recently, it it they've really struggled to make this into a business that can scale in any sort of meaningful way. >> To their credit, nobody has. There's a lot of companies providing these services and I think that's the problem. This whole bast trend banking as a service. It's something there and more and more companies want these platforms but the platforms have not proven to be sticky. So, you know, yeah, they haven't really been able to make a go of this the way they hope to nobody else has either. What SoFi has going for them is is a lot of this investment goes into their own products as well. If I'm a third-party tech company just trying to sell this, I've been destroyed because I can't get margin here and and and I'm running into the same problems. At least kind of like the way Amazon built Amazon Web Services is that we need this infrastructure anyway. Let's see if we can turn an expense into revenue by kind of, you know, selling out our excess capacity. SoFi can kind of do the same thing, which makes it a less bad business for them. But look, all across the board, there's been a lot of companies that have tried to provide these platforms for non-banks or for bank light models. Nobody has really been able to get margin here because again, there's too many of them out there competing. >> Yeah, that's one one area that they're trying to do that recently is with commercial banking. So, they have some commercial banking products uh through their what used to be called the Galileo platform. That's what the technology platform business is. And SoFi is, you know, one of the customers there now. So, uh, it's kind of funny that they're, you know, labeling this. They had an announcement that they were bringing this in and it came from Galileo. It's just, it's just part of SoFi, but that is what you're talking about. Hey, we're building out these services anyways. We might might as well white label some of them to at least some other fintech companies. All right. The other piece of the business, and this has been the huge growth driver over the past few years, is what they call financial services. So, this is going to be kind of the feebased businesses. uh mentioned the loan platform business fall actually falls into this. So that little fee that they get, but also credit card fees is going to be a huge chunk of this. Uh is this the kind of business that can continue to grow and grow profitably and maybe you know just attracting customers to your credit card and you know using your digital app more than you would use something like a Wells Fargo is going to be good enough to just drive more fees and revenue for SoFi. Yeah, the warehouse lending it doesn't really excite me. I think it I think the reason they've been doing this is because they have been able to grow so fast. So yeah, it's great they can do this. They can al delever the portfolio by selling it and get a fee. I think that's fine. I don't think that's a growth business. There's a lot of people doing that just sourcing loans and selling them. It's a fine business, but again, we know how to value that. The opportunity here though is in those other things whether it's the interchange fees, asset management fees, uh referral fees even we've said that they have focused on growth at the expense of maybe profitability because of how they're pricing but also at cross-selling as they now look to cross-ell and they can grow asset management fees on someone had had a personal loan or something. >> That is the quote unquote flywheel. That is I think a real opportunity. Again, everybody under the sun is doing it. So I think we should, you know, limit ourselves. I don't I I don't think it's going to look like the growth curve that Meta Platforms enjoyed or something like that. But yeah, I think there is a realworld opportunity there for them to kind of behave more like most of their banking peers figure out cross-selling and figure out how to benefit from existing customers instead of paying through the nose for new ones. I think that is bullish for the business. All right, we have outlined how the business works, how they make money. What's the bull case if you've got to make it for SoFi stock? Well, I think the bull is a look, they are a full bank with a with a banking charter that allows them to gather lowcost consumer deposits which they can put into lending. And again, this is how banks make money. You bring cash in, you pay one rate for that and then you send it out in the form of lending and you pay a higher rate from that and you capitalize on the spread. They're they have the ability to do that. It is not special. They have advantages on the cost side because they don't have branches, but they also have disadvantages because there's a lot of the most lucrative customers like branches and a lot of the highest paying loans, you need branches for it to deal with those small businesses. So, they can compete here and they can make a good spread especially relative to their non-bank peers that don't have that bank charter and don't have uh lowcost deposits. um they have this flywheel and as again I think the big bullcase from here is cross-selling. They have 15 million members um make those new product signups I think right now about half of new product signups is coming from their existing base that should reduce customer acquisition costs and make them a better more profitable company. You also can drive lifetime value as you build your relationship. Uh I think there is a solid bullcase here for this to be a fast growing bank and and and I think they are beginning to mature into that versus just try and land on as many customers as you can. >> Yeah. And if I'm going to make the bold case, I think that the simple way to talk about it is just that this is one of the companies that's digital first and digital native. And so that gives you just a fundamental advantage when you're looking at younger people in particular who are going to be, you know, riding that wealth curve. They don't talk quite as much about the cohorts as a company like Robin Hood does, but I think it's kind of the same thing where, you know, if you're in retirement, if you have a, you know, $3 million nest egg that you're you're just trying to, you know, figure out what your budget is and all that kind of stuff, that's the kind of people that are going to want to go into a bank, they're not going to be digitally native. But if you're just starting out, let's say you just graduated from college and you're figuring out where you're going to get your first bank account, Wells Fargo is probably not all that attractive. SoFi maybe is. maybe it's one of the, you know, three or four options that you have kind of on that digital side. So, I think that should provide long-term tailwinds for them. And I just think that operating leverage of not having branches and moving to a world where branches are less and less important. I understand that they are important, especially for small businesses who, you know, need to interact with with a person, call a person when you have an issue, uh, and things like that, but I just think those are eventually going to look like kind of antiquated things. And so this is a company that's just kind of built for the future and I like that as a company as long as you're paying the right price. We'll get to that price in just a second. What's the bare case for SoFi? So they do use a lot of personal loans and that that is unsecured consumer credit risk. I think they do a decent job with that. But I think we do have to um have to mention that the tech platform again I think if you see it as kind of funding what their capex I think it looks better but the tech platform I just don't believe in that as as a leg of the bull case. So I think we have to put it in a bare case. I don't think they will ever really find B2B revenue as attractive as as what they hoped. Um and also again this sort of relates to the unsecured credit risk but you know they are very vulnerable I would argue more vulnerable than most banks to changes in macro conditions just because of the nature of their loan book. Uh they are working to change that and as they grow their mortgage business and things like that that should change over time but right now they are more vulnerable than most banks to kind of a tough macro conditions. That's just the nature of their book of business. >> Yeah. So if you're a tech investor, the way to think about this is the the problem with banks is that when people stop paying for the loans and so if we go through some sort of downturn, which we have not gone through a major downturn, sustained downturn, where people weren't paying their loans really since 2008 or 2009, I mean, even the pandemic, there was a lot of band-aids put over loans, whether it was commercial loans or student loans, so that people could kind of push kick kick off those payments or continue making their payments. But we haven't gone through a period where unemployment goes from four or 5% to 8 or 9%. And even the people who have really good credit maybe lose their job. Maybe they can't pay for, you know, the mortgage is probably the first thing you're going to pay. Your car loan is the second thing you're going to pay. And that personal loan is the third thing you're not going to pay if you're not able to pay for something, >> right? And and also this is where the word unsecured comes in because on the mortgage, you could take the house. And look, a lot of their advantage could come back to bite them in the wrong scenario because look, they have grown on pricing power. They have grown because their personal loans are a better deal than credit cards. But that credit card, it was a better deal for the consumer because they were charging less. If defaults go up, that extra margin that the credit cards gained will come in handy. I'm not predicting that. I, you know, I'm not predicting a downturn, but you got to understand again the trade-off they made is we're going to grow. We're going to use pricing power to grow. And that pricing power can bite you if you were the lowcost provider of unsecured personal loans because you have a lot less margin built up against the risk of default. >> Yeah. The only other thing I'll add is I totally agree with what you're saying with the technology the platform business. That is something when I first looked at the company went, "Oh, I think this is potentially going to be a differentiator for them." That just hasn't proven to be the case over the past few years. And if it was going to to be, I think it would have by now. So, I I sort of agree when I look at the stock, I sort of put that business to the side and look at what's going on with lending, what's going on with financial services, are there more customers coming into the ecosystem? Okay, the most important question I want to know is SoFi stock a good buy today? Okay, I'll give you a couple of metrics in a second. And then I also want to know if it's not what price would it be a good buy. So today we have a price earnings multiple of about 35. Forward basis is about 22. Price to book value. So here's your banking metric is about 1.9. Right? And this is where it's hard because I do believe SoFi deserves a premium to other banks. Okay. I think that you do need to reward growth, but at what price? As you say, the forward PE is almost 30. That's 3x truest financial, which is a boring growing less but fine bank that isn't going to go anywhere. I don't know if I can justify a 3x premium for the growth that I think is going to slow over time as they become more like they're not going to become truest, but they're going to they are they are moving towards truest faster than truest is moving towards SoFi. So at what at so what multiple does that make sense? I think it's less than a 3x even on price to book you 1.9. Right now you can get truest at below book. All right. So maybe that's not a fair comparison though. Let's because but Lou the branches they're dragging you down. Exos financial which is I think an inferior online only bank to SoFi but they still trade at a pretty con pretty massive discount to SoFi. Uh AXOS trades actually at a a PE ratio below truest today. Uh AXOS's price to book is maybe 1.4 or so. >> Yeah. 1.6. Yep. >> Or or 1.6. Okay. So less but not so bad. I think that look there is a good argument to be made again that SoFi deserves a premium to all of those. I think today's premium is too much for it to be a buy. At what price is it reasonable? Maybe if you cut that valuation in I don't know even in half you're still ahead of truest. I think at a valuation in half it's definitely worth the added you know the added because of the growth potential but it's got to come way down from here. I I wouldn't sell it at this because I think they can sustain, but I I definitely I'd be closer to a sell than a buy and I am a hold on here. If I had gains from those swings, Travis, because you mentioned it's been a very very volatile stock. If I was sitting on big gains, if I bought at the right time, I don't know if I I think they're going to have to grow into that valuation. I don't think the multiple expands from here. Well, I will take a much more bullish case for SoFi and I want to put this in a little bit of context because this is the way that I've built my portfolio too. I think this falls into a good basket of companies that is going to be the future of finance. So companies like SoFi, Robin Hood, you could put new in that same category, you know, I think putting three, four, five companies that are riding the tailwinds of generational changes, of digital changes. They don't have the cost of branches. So, you don't have that operating cost there. They're able to expand into more products. They're able to span expand dig or internationally uh in some cases. I think that's where you want to be as an investor. The companies that are playing offense and the growth really shows rather than just, hey, we're making a, you know, small cut on the spread. I think that's where SoFi has a real opportunity long term. I understand what you're saying with the it's just a bank, but I also think JP Morgan trades for I think it's 2.4 times their book value right now. That's maybe not a perfect comparison, but that's a big bank. You get a discount uh at 1.9 times book for SoFi. Anthony has done a really good job selling stock when the stock price is high and then using that capital to help fund uh growth in the future. So, I think you add all that together, it's a reasonable price today. I don't think it's a screaming buy today. If we do get a 15, 20, 30% discount from where we are today, I'd be much more interested in backing the truck up. But I think, you know, even starting to build a position today is definitely a good price uh for SoFi. So, I'm going to put it in the buy category. Not quite screaming buy yet, but definitely one I'd like to add more to my portfolio if we do get one of those discounts. Let us know what you think about SoFi stock in the comments section below. 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