SoFi Technologies (NASDAQ:SOFI) has come a long way since being established as Social Finance in 2011 by a group of recent graduates with the aim of consolidating student loans and minimizing overall interest payments. Since then, the company has transformed into an online bank, offering a range of personal finance and consumer lending solutions, and also licensing their infrastructure technology.
Apart from their primary focus on consolidating student loans, SoFi engages in originating and servicing various consumer lending products. These include private student loans, mortgages, personal loans, and credit cards, among others, through their online banking platform. In addition to conventional banking offerings, their online platform provides financial services, including retail investing capabilities, amongst other features.
Furthermore, its tech platforms, Galileo and Technisys, are licensed to other companies, predominantly ones dealing in financial services. These platforms serve as the foundation for enabling a host of essential client-facing and back-end functions, including account setup, funding, direct deposit and authorizations & processing.
Assessing the outlook for SoFi, Deutsche Bank analyst Mark Devries believes that the key to the company’s long-term prospects will be strong growth in the non-lending businesses. But while SoFi has set its sights on becoming the “AWS of banking services,” Devries thinks that in order for it to do so, it will first need to “return to the strong growth in the Technology platform that it had until 2023.”
The catch, according to Devries, lies in a stock valuation that may not accurately reflect the company’s current standing.
“Despite nearly all current revenues coming from consumer lending, SOFI continues to trade much more like a tech business detached from any near-term economics,” the 5-star analyst said. “Given the very different margin and valuation profiles between technology and consumer lending businesses, we believe software sales growth is currently driving the valuation more than anything.”
And that is the main issue for Devries, because there is currently “limited visibility on tech platform growth needed to support the valuation.”
As such, Devries rates SOFI shares a Hold (i.e., Neutral) along with an $11 price target. Despite the neutral rating, that figure still makes room for one-year returns of 36%. (To watch Devries’ track record, click here)
Elsewhere on the Street, the SOFI reviews are roughly evenly split between the bull and bear camps. Ultimately, based on 4 Buys, 7 Holds, and 3 Sells, the stock claims a Hold consensus rating, with an average target price of $8.93, implying ~11% upside from current levels. (See SoFi stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
