Shares of online financial firm SoFi Technologies (SOFI) are up 16.6% over the past five trading days, as the company continues to gain coverage.
With so many analysts sweet on SoFi, it’s hard not to join in, and I’m bullish on the online financial operator as well.
SoFi’s stock has seen sharp ups and downs in the past year. Objectively, though, those ups and downs have kept the company in a fairly narrow range. (See SoFi stock charts on TipRanks)
Jefferies initiated coverage of SoFi on Wednesday, and did so in a big way. It declared SoFi a Buy, writing that the company’s business model puts it on track for excellent results.
Jefferies, via analyst John Hecht, noted that SoFi “boasts an exhaustive consumer finance product suite, a robust digital platform, and omnichannel execution.”
More specifically, Hecht cited the company’s “Flywheel” business model, which produces substantial opportunity for the company to cross-sell its various services.
Users may start in at one level, but have the opportunity to quickly progress to other points that can address issues they may face. One description of the “Flywheel” noted that customers start by using SoFi Money to track their spending, but move to SoFi Relay to improve their credit scores. From there, they start taking advantage of robo-advisors, loans, and more, all within the company.
Wall Street’s Take
SoFi comes in as a Strong Buy, based on four Buys, and one Hold assigned in the past three months. The average SOFI price target of $24.50 implies upside potential of 44%.
Tomorrow’s Banking Superpower?
Financial technology (fintech) firms like SoFi represent an exciting opportunity. Banks are increasingly looking to move away from the traditional branch model, and instead open up more opportunities to bank online.
Some observers consider this straight-up impossible; how do you issue a loan without ever seeing the applicant?
Yet the rewards of such a move are massive. Imagine a bank that no longer needs real estate for its branches. The reduction of expenses is potentially enormous.
Those kinds of savings have banks interested, even as some customers threaten outright revolt over the loss of a branch, especially older customers.
However, that preference doesn’t stop at generational lines. A KeyBank survey found that younger Americans — Millennials and Gen Z alike — both have a preference for a mix of digital and in-person operations.
Establishing those digital operations can be a challenge, however. Banks don’t typically employ software developers, at least not in the quantity required to stage a complete digital migration. So they often look to subcontract the work out. They use their substantial capital, built up over decades, to put other companies’ developments to work.
This takes time, though, and banks are not known for their agility. This has left the door open for “challenger banks,” largely digital operations, to step in. Organizations like SoFi stand to benefit substantially.
Concluding Views
SoFi has a great opportunity to win going forward, with many analysts bullish on the stock.
When one person is bullish, that’s an opinion. When two people are, it’s a coincidence. The numbers of bullish voices increasing beyond that, though, which should be enough to make people look twice at SoFi.
This company could well represent a major portion of the future of banking, and sooner than some expect.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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