SoFi Technologies (NASDAQ: SOFI) just reported financial results for the first quarter. The numbers looked solid, with stellar growth still on tap and ongoing increases in profitability. Shares were up 3% the morning of the announcement.
Shareholders have definitely had to deal with heightened volatility. But this fintech stock has performed particularly well recently, up 78% just in the past 12 months. Maybe the momentum can continue.
Is SoFi the smartest investment you can make today?
SoFi's impressive growth
In the most recent quarter, the business's adjusted revenue rose 33% year over year to $771 million, which was a record. The financial services segment, which offers bank accounts, investment products, and credit cards, was the standout. Total net revenue in this segment more than doubled, boosted by an incredible 321% gain in noninterest income. Getting more exposure to fee-based revenue sources can help reduce cyclicality and add stability.
Innovation remains the key part of SoFi's growth strategy. The management team isn't going to rest on its laurels anytime soon. It's all about finding ways to better serve new and existing customers.
For example, SoFi launched a home equity product last year that resulted in a 54% jump in home loan originations versus Q1 2024. There's more on tap. "A planned personal loan product for prime credit card customers with revolving balances and a new SmartStart student loan refinancing product will give members more ways to get their money right," the latest press release reads.
SoFi now has 10.9 million members, up 34% year over year. The digital banking powerhouse is experiencing rapid adoption among users and making a name for itself in the financial services industry.
Consistently generating profits
SoFi isn't struggling in the growth department, but investors might not be familiar with the fact that the company is consistently profitable. Net income was $71 million in Q1, translating into a net income margin of 9.2%. This was the sixth straight quarter of positive earnings in accordance with generally accepted accounting principles (GAAP).
Credit performance supports the bottom line. SoFi's charge-off rate of 2.37% (for all loans) in the first quarter represented a notable improvement from Q1 2024. Investors should keep a close eye on this critical metric, especially if economic conditions weaken.
It's difficult to predict what SoFi's long-term profitability could look like. JPMorgan Chase is widely considered the gold standard in the banking industry. In the first quarter, it reported a 32.3% net income margin.
Of course, JPMorgan Chase's business model isn't exactly the same as SoFi's, as the former has a large commercial banking, capital markets, and asset management presence. However, SoFi's all-digital format could support a very scalable model that drives higher earnings power over time.
A smart investment
As of this writing, SoFi shares are 48% below their all-time high from February 2021. It could be some time until this record level is reached again.
The stock trades at a forward price-to-earnings (P/E) ratio of 52. At first glance, this doesn't seem cheap by any means. Consider, though, that earnings per share are projected to rise at a compound annual rate of 69% between 2025 and 2027, according to the average of Wall Street analyst forecasts. I believe this justifies paying what appears to be an expensive starting valuation.
While I won't go so far as to say that SoFi is the smartest investment you can make today, I believe it's worth considering for your portfolio. There is a strong possibility of achieving market-beating returns during the next few years.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
