Metric sales

Stay away from SoFi stocks? This key metric indicates it’s a buy

In March, SoFi (SOFI) – Get SoFi Technologies Inc report the stock hit an all-time low. Heavy selling pressure on fintech stocks – spurred by macroeconomic uncertainty, geopolitical unrest and rising interest rates – has not spared this personal finance company. News of another extension to the nationwide student loan payment moratorium SoFi stock also helped drag the stock lower, just after it began recovering from its nadir.

However, despite all the downtrend, SOFI continued to invest to become a major player in the emerging financial technology (fintech) market. And the company’s management is more optimistic than ever about the company’s future.

Figure 1: Stay away from SoFi stocks? This key metric indicates it’s a buy

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Insiders are buying a lot of SoFi stock

Insider trading is a metric that can tell a lot about a company’s future prospects. When a company’s insiders buy shares in significant amounts, it’s usually a positive sign. This implies that those who know a company best (those who run it) believe that 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 buy trades while each purple bar represents sell trades).

Figure 2: SoFi insider transactions.

Figure 2: SoFi Insider Trading.

In the past three months alone, between SoFi directors and CEO Anthony Noto himself, some $8.87 million worth of SoFi stock has been purchased by insiders. It appears SoFi executives are doing all they can to take advantage of the company’s 65% decline since November of last year.

A handful of other reasons to buy

The optimism that SoFi insiders have in their own business can easily be justified. SoFi is a fintech growth stock investing heavily to become a “one-stop financial services platform”.

CEO Anthony Noto sees SoFi operating in the fintech space the same way Amazon Web Services (AWS) operates in other markets in its niche – a dominant player carving out the lion’s share of the market.

SoFi’s billion-dollar acquisition of Technisys, a cloud-based company focused on basic banking services, bolsters its strategy of building a BaaS (banking as a service) business. With this acquisition, SoFi expects to reduce its 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. Earlier this year, SoFi received regulatory approval to officially become a bank. This allows a transition in the business model of the company. More than just a lender, SoFi – as a bank – will be able to offer a wider range of financial services to its customers.

The approval of the company’s banking charter will lead to a diversification of its business model. Currently, more than 80% of SoFi’s revenue comes from its lending business. By accessing new sources of revenue, the company expects its revenue to grow sixfold by 2025.

Figure 3: SoFi's Diversified Revenue Streams.

Figure 3: SoFi’s diversified revenue streams.

Should short-term headwinds be ignored?

In the short and medium term, SoFi could continue to suffer from market volatility. Recent news about President Biden extending the moratorium on student loan payments has sent SoFi plummeting again and has Wall Street analysts worried as well. It’s not hard to see why – SoFi was forced to revise its 2022 sales forecast down to $1.47 billion from $1.57 billion.

CEO Anthony Noto released a statement after the moratorium extension was announced. He said the company’s struggles with student loan refinancing should come as no surprise. Since Covid hit, the company has only done about 50% of its normal student loan refinance. Still, the CEO’s optimism remained intact.

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

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

According to data from Lightyear Capital, integrated finance is expected to grow nearly 1,000% by 2025, from the current $22.5 billion to nearly $230 billion. Integrated banking is the integration of banking services with a company’s marketplace and is implemented through a banking service provider (BaaS). SoFi is doing the work and making the investments to become a beneficiary of this growing market – but it will take time.

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

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

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