3 Reasons Why You Should Buy SOFI Stock Before It Turns Profitable

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SoFi Technologies (NASDAQ:SOFI) has made headlines after the fintech firm announced acquiring Wyndham Capital on April 3. The latter is a digitally-native company that relies heavily on technology and automation in its origination process, aiming to eliminate inefficiencies and reduce costs. Clearly, SoFi stock is back on everyone’s mind after the latest announcement!

Considering the current macroeconomic outlook, the timing might seem strange for a certain section. Inflation remains above the 2% benchmark the Federal Reserve is targeting. High-interest rates result in increased borrowing costs for banks, leading to higher mortgage rates for consumers.

Despite SoFi’s positive aspects, such as its diverse financial services and pursuit of profitability, the stock remains undervalued. This may be due to the recent banking crisis that caused the downfall of some prominent names, leading to investor reluctance to invest. As a result, the stock has a negative one-year return of over 35%.

However, the latest move shouldn’t shock those who closely monitor SoFi’s activities that they have made this acquisition. SoFi is adopting a contrarian approach by leveraging its financial resources to pursue its M&A strategy actively. The company is interested in pursuing M&A deals to bolster its mortgage business. And the latest purchase is evidence of this.

Thus, SoFi is taking a long-term approach to continuously improve its portfolio and provide the most superior mortgage offering. This is a key reason to stay invested in the lender, which is fast approaching profitability.

However, it is not the only reason to stay involved.

SoFi Is Making Good Use of Its Resources

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Consolidation is common in bear markets. Those strategically incorporating high ROI elements will likely benefit during the next bull market. SoFi seeks to provide customers with exceptional experiences, but its mortgage offerings have been insufficient due to reliance on partners that cannot always meet customer demands. The acquisition of Wyndham Capital Mortgage will allow SoFi to bring everything in-house, providing superior customer service.

SoFi recently acquired Wyndham Capital Mortgage, broadening its mortgage product range and improving unit economics. While the acquisition may not significantly impact SoFi’s 2023 financial outlook, it is anticipated to be accretive within six months. Wyndham Capital’s technology platform and team will be integrated into SoFi’s Lending business, boosting the home loans segment of its Financial Services Productivity Loop strategy.

Acquiring Wyndham Capital Mortgage is a wise long-term move for SoFi. Considering the struggling mortgage industry and Wyndham’s reduced originations and headcount, the acquisition likely came at a reasonable valuation. SoFi can use the acquisition to accelerate its growth when mortgage volumes increase as the housing sector improves and rates decline.

Fortunately, the acquisition was entirely cash, alleviating shareholder concerns about stock dilution. SoFi’s low stock price and substantial cash position are likely reasons for this decision. The company has over $1.4 billion in cash and cash equivalents, is now cash flow positive, and has been freeing up capital to build cash reserves for future M&A activity.

Ultimately, SoFi wants to become an all-in-one finance app. Consequently, although it grows organically, the lender monitors depressed value plays it can snap up.  For example, in the past, SoFi picked up digital banking technology company Technisys and Galileo, a powerful API and payments platform, in a cash-and-stock deal, taking advantage of its reserves and rampaging stock price.

Targeting a Key Demo

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SoFi stock is in a great position to compete with traditional banking stocks for multiple reasons. The company’s focus on serving tech-savvy millennials has attracted highly-educated and high-credit score customers.

Consequently, SoFi’s low fees, competitive rates, and user-friendly apps make it an attractive option for customers seeking full banking services. As a result, SoFi is in an advantageous spot to entice customers away from traditional banks and turn a profit.

SoFi recognizes that millennial banking customers prioritize transparency in fees and pricing, access to their data, and the ability to view and update their products and services at any time. Hence, SoFi continues to focus on meeting these expectations to cater to the needs of millennial banking consumers.

Millennials and Gen Z, the largest generational demographics in the U.S., are shaping the world. Financial institutions that are already digital-as-default are further accelerating this transformation in response to the preferences of these generations.

According to Morgan Stanley research, Millennials are the primary drivers of net new loan demand, and the trend will continue moving forward. Gen Z will enter the lending sweet spot of ages 25-40 next. While many Gen Z members are still young, they have already set the pace for banking evolution by using mobile banking, with up to 80% of smartphone-carrying Gen Z individuals utilizing this service, according to Morgan Stanley.

Fintech partnerships, incubators, and accelerators are increasingly catering to the demands of younger demographics for accountable brands that provide value through digital convenience and authentic experiences. SoFi, originally focused on student loans, is among the companies leading the charge.

An Increased Suite of Product Offerings

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SoFi’s banking license expands its financial services for customers, increasing deposits, allowing for loan retention, and boosting interest income. This growth reflects the company’s revenue, which surged by an impressive 60% year-over-year to $1.6 billion in the fiscal year 2022. This is largely attributable to the expansion of its client base, the introduction of a wide variety of products, and its efficient management of funding expenses.

SoFi has a competitive edge against traditional banks as it caters to tech-savvy millennials, who are typically well-educated with high credit scores. Its banking license has allowed the company to provide comprehensive financial services to customers, leading to growth in its deposit base and interest income through loan retention.

Furthermore, SoFi has implemented various hedging strategies to protect itself from rate increases, successfully increasing its weighted average coupon for personal loans while maintaining low loan losses and default rates in the fiscal year 2022.

Overall, expanding its product offerings is essential for SoFi’s long-term success. This strategy is paying off, as the company is on track to achieve profitability by the end of 2023.

Student Loan Pause: The Latest Developments

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For some investors, the stalling of SoFi’s student loan business remains a key reason not to invest. SoFi has seen a major drop in a critical business line since implementing the student loan payment moratorium. The good thing is that SoFi understands this, which is why it is taking action on the matter.

SoFi Technologies’ bank subsidiary is taking legal action to challenge President Joe Biden’s recent extension of the student loan payment pause. The bank argues that the moratorium has cost it millions of dollars in profits.

The payment pause has negatively impacted the company’s business of refinancing student loans. The lawsuit asks that the pause only be confined to eligible borrowers under Biden’s debt forgiveness plan.

SoFi contends that the eighth extension of the moratorium was not implemented due to the pandemic. But rather to provide extra time while the Supreme Court considers Biden’s debt cancellation plan.

The extension has already cost SoFi Bank at least $6 million in lost profits. And the losses could reach $30 million if it continues through August. This underscores the importance for SoFi to challenge the extension and resume its business of refinancing student loans.

Is SOFI Stock a Buy?

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In conclusion, SoFi Technologies is a rapidly growing fintech company with a solid banking license, diverse financial services, and a strong potential for profitability.

Despite the recent banking crisis and the decline in stock value, SoFi’s resilience and adaptability make it a strong contender. Investors searching for a long-term investment with promising growth potential should consider adding SoFi stock to their portfolio. It is a top pick among fintech stocks.

On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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