SoFi Stock Sinks Despite Upbeat Outlook. Should Investors Buy the Dip?

SoFi Technologies (NASDAQ: SOFI) shares were falling following its third-quarter results despite the financial-service company posting strong results and issuing upbeat guidance. The stock had made a huge month since the start of October but is up just modestly on the year.

Let’s take a closer look at the company’s recent results to see if this is a buying opportunity for investors.

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SoFi called its Q3 the strongest in its history, and the results were pretty impressive. The company’s revenue jumped 30% to $697.1 million, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 90% to $186.2 million.

Its tangible book value, meanwhile, rose 16% year over year to $4 per share. It grew by 2% sequentially.

The company’s results were led by its financial services segment, which saw revenue more than double to $238.3 million. The segment’s contribution profit soared from $3.3 million to $99.8 million.

The growth was powered by its loan platform business, which is essentially a lead-generation business where it refers borrowers to other parties. The business saw its platform-revenue fees surge 5 times to $55.6 million. The segment also saw interchange revenue skyrocket by 211% to $12 million.

Net-interest income (NII) in the segment, meanwhile, surged 66% to $154.1 million. SoFi said this was driven by increased customer deposits. Overall, it saw a 33% increase in the number of financial products being used. Its annualized revenue per product rose 53% of $81.

For its lending segment, revenue increased 14% to $396.2 million, with net-interest income (NII) rising 19%. Its contribution profit jumped 17% to $238.9 million. Total loan-origination volumes jumped 23%.

Technology-segment revenue, meanwhile, climbed 14% to $102.5 million. Contribution profit rose 2% to $33 million. Total clients jumped 17% to 160.2 million.

From a growth perspective, it appears everything was working in SoFi’s favor this quarter; all results across the board were strong.

One knock on SoFi had been its credit metrics, but the company saw its charge-off rate decline to 3.52% from 3.84% in Q2. SoFi did sell some later-stage delinquencies but said that, if it hadn’t, its all-in annualized net charge-off rate would still have dropped from 5.4% in Q2 to 5% in Q3.

Overall, it said its personal loan borrowers have an average income of $164,000 and weighted-average FICO score of 746. Student loan borrowers, meanwhile, have an average income of $135,000 with a weighted-average FICO score of 765. As such, it does not appear that the company is lending to subprime borrowers to help fuel its growth.

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Looking ahead, SoFi forecast full-year adjusted-net revenue of between $2.535 billon to $2.55 billion, representing growth of 22% to 23%. This was above its prior outlook for revenue between $2.43 to $2.47 billion, equal to 17% to 19% growth. It also upped its adjusted EBITDA guidance to a range of $640 million to $645 million, up from its previous view of $605 million to $615 million.

At a forward price-to-earnings (P/E) ratio of 45 times and a price-to-tangible book value (P/TBV) of about 2.6 times, SoFi is not cheap based on traditional metrics. However, the company is growing strongly, and its credit quality improved sequentially.

Overall, the stock dipped despite what was a great quarter. There had been worries about credit quality and decelerating growth, but growth accelerated and credit quality improved during the quarter. Meanwhile, the company should be in a good position moving forward, with the Federal Reserve at the start of a rate-cutting cycle and the economy holding up well. That should be a strong combination for a company involved in both originating its own loans as well as generating leads for other lenders.

That said, this is not a cheap stock, and it would be vulnerable to any weakening in the economy. As such, I’d view the stock more of a hold at current levels.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

SoFi Stock Sinks Despite Upbeat Outlook. Should Investors Buy the Dip? was originally published by The Motley Fool