Cathie Wood of Ark Invest is known for her fervor in emerging markets such as biotechnology and artificial intelligence (AI). However, she also has investments in companies within less-revolutionary fields.
Thus, let’s delve into fintech company SoFi Technologies (NASDAQ: SOFI), a unique stock in Wood’s portfolio where the share price and the underlying fundamentals may be disconnected. With the price of shares trading under $8, SoFi emerges as Wood’s best pick under $10.
A Modern Take on Financial Services
Traditional financial services encompass banking, establishing a brokerage account, and purchasing insurance. While one may use different companies for these services, it can lead to inefficiencies and frustrations.
SoFi has revolutionized financial services by offering diverse lending, banking, insurance, and investing products on a seamless online platform. Through a “financial services productivity loop,” SoFi efficiently cross-sells products to users, resulting in an effective business model.
Challenges Impacting SoFi Stock
As of now, SoFi stock has declined by 26% from its initial public offering (IPO), primarily due to perceived competition and concerns about its SPAC merger in 2021.
Skepticism surrounds SoFi’s ability to compete with larger banks, akin to how Tesla faced doubts about being solely a car company. Additionally, SPACs historically have not been lucrative long-term investments, contributing to negative sentiment.
The recent series of Federal Reserve interest rate hikes has also adversely affected SoFi’s lending business, compounding the challenges faced by the company.
Evaluating SoFi’s Investment Potential
Assessing SoFi’s valuation presents a challenge, as conventional metrics like price-to-book (P/B) and price-to-earnings (P/E) ratios may not fully capture its transition to profitability.
A sum-of-the-parts (SOTP) valuation approach appears apt for SoFi, given its multi-faceted presence in the financial services sector. Analyzing each segment individually and considering upcoming catalysts is crucial for a comprehensive evaluation.
With the Federal Reserve commencing rate cuts, a potential resurgence in SoFi’s lending business looms, promising improved profitability for the company. The firm’s tech-enabled services further position it for future success in the competitive financial landscape.