The rout among growth stocks during the past year can be seen by a look at the Nasdaq index. In fact, over the past five years, the Nasdaq has risen over 128%. But year-to-date, it has fallen around 15%. This bear market has been caused due to the rapid rise of inflation, and recent interest rate rises. But as a long-term investor, I see a lot of potential in several beaten-down growth stocks. This US fintech stock is a prime example.
What is the company?
SoFi Technologies (NASDAQ: SOFI) went public via a SPAC at the end of 2020. Its start as a public company was very strong. In fact, the stock reached highs of nearly $25 in November last year, which was over double its original price. Despite this, the growth stock has now fallen back to below $8, its lowest ever price. This is a 70% decline.
But SoFi has been performing very well. Indeed, in 2021, the company managed to report adjusted net revenues of over $1bn, a 62% rise year-on-year. Further, the company’s members reached nearly 3.5m, an 87% year-on-year rise. This demonstrates that the fintech is growing at incredible rates, and this may be due to its strong business model, which incorporates several different services, including investing and personal loans.
In the same year, SoFi also acquired a bank charter meaning that it will be able to directly lend to customers. This is expected to boost profitability.
Why has SoFi stock fallen?
Considering its many positives, it may seem odd that SoFi stock has fallen back so heavily. But alongside the general sell-off in growth stocks, SoFi has faced several individual headwinds.
Firstly, President Biden has continued to extend the student loan payment moratorium, most recently until 31 August of this year. SoFi also expects this will be extended beyond August. This will affect SoFi due to its student loan refinancing business, which has operated at less than 50% of pre-Covid levels for the past two years. As such, the fintech has lowered revenue guidance for 2022 by $100m to $1.47bn. Adjusted EBITDA guidance has also been lowered to $100m, from previous estimates of $100m. Despite this, both these figures still represent stellar growth from 2021. Further, the moratorium is only a short-term problem, and as a long-term investor, I am not overly worried.
SoFi has traded at extremely high valuations, including a forward price-to-sales ratio of around 20 last November. However, at its current valuation it only has a P/S ratio of under 5, far lower than many other growth stocks. Therefore, I no longer view SoFi stock as overvalued.
Why is this growth stock a no-brainer buy?
I am cautious about buying growth stocks now, due to inflationary issues. But the presence of its lending business, means that SoFi should be able to offset some of these inflationary pressures, as it can lend at higher rates. Further, as evidenced by member growth, it’s a real disruptor in the fintech space. As such, I feel that this dip offers a great time to buy, and I may add more to my portfolio in the next few weeks.