To The Moon

$SoFi Technologies Inc.(SOFI)$

Sofi's stock is down 11% over the past few days, which I believe is a massive overreaction. In this discussion, I'll dive into why the stock is dropping, whether this could be a great buying opportunity for a growth stock like Sofi, or if there’s merit to the analysts predicting it could fall to $8 per share. I'll share my perspective on its fair value, the company's future, and even some related options strategies.

To provide context, my last update on Sofi was when it was trading at $6.98. Back then, Sofi was a heavily criticized stock, and the same thing is happening now. However, when the stock rebounds, critics often go silent—that’s just how the market works.

Sofi is riding the digitalization wave in the banking sector, disrupting a trillion-dollar industry that hasn’t seen significant innovation in decades. Its appeal, especially among younger users, lies in its all-in-one app for high-yield savings, investments, student loans, personal loans, and even home loans. I’ve personally used Sofi and had a great experience.

The company’s growth is impressive, with membership increasing by 35% year-over-year, reaching 10 million members—a 9x growth in less than five years. This rapid expansion highlights the strength of its business model, which thrives on cross-selling products to its existing customers.

Sofi’s financials are also improving dramatically. It went from losing $484 million to generating $214 million and achieving GAAP profitability. This reflects the company’s ability to drive revenue and adjusted EBITDA growth, despite a challenging macroeconomic environment with rising interest rates.

One standout metric is Sofi’s origination volume, which has grown by 23%, even as higher interest rates typically dampen loan demand. Home loans are up 38%, and personal loans by 26%, showing resilience in a tough market.

Looking ahead, Sofi’s guidance has been consistently revised upward. Earnings per share for 2024 were initially projected at $0.07, then adjusted to $0.10, and now stand at $0.12—a remarkable 80% increase. Sofi has a track record of conservative guidance and overdelivering, which boosts my confidence in its long-term potential.

So why the 11% drop? A KBW analyst recently downgraded Sofi to "underperform," setting a price target of $8. The reasoning? The stock is trading at 69 times its 2025 expected earnings, compared to a median of 12.2 times for other digital lenders. However, I find this comparison flawed. Sofi is a high-growth disruptor, not an old-school lender. Its growth metrics—136% EPS growth in 2024, 112% in 2025, and 67% in 2026—make it incomparable to legacy players.

While the stock’s valuation may seem stretched in the short term, especially after a six-month rally, its long-term growth prospects remain solid. Stocks often take breaks after extended runs, and Sofi might just be experiencing a healthy pullback.

In the next part of this discussion, I’ll provide a fair valuation model for Sofi over the next five years and share more detailed insights into its outlook. Stay tuned for actionable ideas and strategies!

I'm going to use some estimates to determine Sofi's fair value. One common critique I often receive, especially from value investors, is that my analysis includes too many "ifs." People often say, "What if this happens? What if that happens?" But the reality is, when you're valuing a growth stock, there will always be uncertainties. Growth stock valuation is about the future, not the present. This isn't Coca-Cola; you can't base its value on the last 12 months of free cash flow or trailing earnings. Growth stocks, particularly in their early business cycle, are inherently speculative.

Sofi is a speculative investment, not something I would dedicate my entire net worth to. My strategy with growth stocks is to allocate a small percentage of my portfolio. If they succeed, they can grow 10x, 20x, or even more, providing substantial returns without a massive initial investment. If they fail, the losses are minimal.

Now, looking at Sofi's performance compared to analyst estimates, the company has consistently beaten expectations every quarter since going public. This track record gives us confidence that they may continue to outperform in 2025. While there's no guarantee, the odds seem favorable.

For my valuation, I'm using a 2025 EPS estimate of $0.28 (GAAP). I apply a simple compounding calculation for a five-year forecast, focusing on doubling my investment within that timeframe. If I can reasonably expect a double in five years, I consider it a fair price.

Sofi's projected EPS growth for 2025 is 112%, though I’ve adjusted that downward for conservatism. Over the following four years, I’ve reduced the growth rate from 112% to 30%, reflecting a more realistic trajectory. This yields an estimated EPS of $0.80 by 2029.

Currently, Sofi trades at 64 times earnings, but for my model, I’ve halved that to 35 times earnings, assuming slower growth as the company matures. If Sofi achieves an EPS of $0.80 in 2029 and trades at 35 times earnings, its stock price would be $28. Compared to today’s price of $14, that represents a 2x return (100% upside) over five years, or roughly 15% annualized.

This makes Sofi a good buying opportunity at its current price, though not the best. The valuation accounts for a 50% multiple contraction and more modest growth estimates than analysts expect.

One concern people often raise about growth stocks like Sofi is insider selling. They ask, “If the company is so great, why are insiders selling their shares?” It’s important to understand that many tech companies, including Sofi, issue substantial stock-based compensation. Insiders often sell stock to realize their compensation—it’s not necessarily a bearish signal. For instance, this happened with companies like Tesla and Palantir, where insiders sold shares even as the stocks grew significantly over time.

While I don’t currently own Sofi. In the best-case scenario, I will acquire Sofi shares at $8-9, a significant discount to the current price. In the worse-case scenario, If Sofi’s price continues to decline i will slowly acquire more, this is the approach I’ll pursue.

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