This article first appeared on Simply Wall St New.
SoFi Technologies, Inc. (NASDAQ: SOFI) had its “buy the rumor” moment yesterday after the stock rose nearly 13%. The main driver of this decision is probably the expectation that the company will get the regulatory green light for its banking charter.
We can expect more volatility as the earnings report date draws closer to November 10.
After a long period of variation over the summer, SoFi action has erupted, rallying over 50% of support. The market anticipates the favorable outcome of the company’s efforts to acquire Golden Pacific Bankcorp.
However, this is not the first time SoFi has tried to become a bank. Originally, he applied for a banking charter in June 2017, but withdrew the request after changes in senior management. After applying for a national banking charter in July 2020, the company received conditional approval 3 months later.
However, the acquisition of Golden Pacific Bankcorp would speed up plans and bring multiple benefits.
Increase lending capacities: Banks operate by using deposits to offer loans. With loans being the main source of income, the company will be able to expand its lending capabilities.
No recourse to third-party banks: As a bank, SoFi will not have to depend on third party banks to provide capital, which will reduce operating costs.
Better control of marketing and prices: If obtaining a national banking charter gives the company credibility, a new price control will allow it to target a larger market share. Although they are already competitive in price, the lower cost will allow for a very flexible approach – from higher EBITDA that will fuel future growth to more competitive prices that will capture more market share.
In the presentation to investors, the company reflected on the positive impact on EBITDA of a banking charter.
How long before SoFi reaches profitability?
According to the 8 industry analysts covering SoFi Technologies, the consensus is that the breakeven point is near. They predict that the company will suffer a final loss in 2022 before generating positive profits of US $ 28 million in 2023. Therefore, the business is expected to break even at roughly In 2 years.
How fast will the business have to grow from year to year to break even by that date? Using a line of best fit, we calculated an average annual growth rate of 69%, which indicates a great confidence of the analysts. If this rate turns out to be too aggressive, the company could become profitable much later than analysts predict.
The developments underlying the growth of SoFi Technologies are not the focus of this broad overview, However, Keep in mind that in general, a high predicted growth rate is not unusual for a business that is currently in an investment period.
However, there is one problem worth mentioning. SoFi Technologies currently has a relatively high level of debt. As a general rule of thumb, debt should not exceed 40% of your equity, which in the case of SoFi Technologies is 54%. Note that a higher debt obligation increases the risk associated with investing in the loss-making company.
Between the stock market rally and the silent hiring of an experienced banking executive, there are signs that the banking chapter’s approval is near. As profitable as it may sound, such a development could bring the SoFi breakeven point even closer.
However, there are too many aspects of SoFi technologies to cover in a short article. Yet the key business fundamentals can all be found in one place – SoFi Technologies Company Page on Simply Wall St. We have also compiled a list of key The factors you should continue your research:
Historical review: How has SoFi Technologies performed in the past? Go deeper into the background analysis and take a look at free visual representations of our analysis to clarify more.
Management team: An experienced management team at the helm increases our confidence in the company – take a look at who sits on the board of directors of SoFi Technologies and the experience of the CEO.
Other high performing stocks: Are there other stocks that offer better prospects with a proven track record? Discover our free list of these great stocks here.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St do not have any position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.