Where will SoFi stock be in 1 year?

If you had asked me where SoFi technologies (SOPHIE 0.51%) the stock would be now at this time last year, I don’t think I could have predicted it would be roughly flat. It’s up 73% year-to-date this time last year and has been gaining momentum.

I made some predictions about SoFi last June, which were the same: more accounts, positive net income, and increased student loans. I also anticipated better performance if interest rates were to fall, which is quite obvious and has yet to happen. I thought SoFi had a strong long-term outlook, but I was more hesitant to say how high it would go in the short term. It was a prudent analysis and it was the right one. As much as SoFi seems to have all the characteristics that could make a great company and a great stock, it has been dealing with intense external headwinds that have made it difficult for the company to realize its potential.

Let’s see how things might go in the next year.

Engagement: Growing

Financial services app SoFi offers a wide range of services aimed at students and young professionals. It started as a credit union for recent graduates and its lending segment is still the largest. However, it has expanded into other services such as bank accounts, investment accounts and even travel. It also operates a white-label financial services infrastructure business called Galileo.

This combination has attracted millions of members at a rapid rate of growth. Membership grew 41% year-over-year to nearly 8.8 million in the second quarter, with products growing 36%. SoFi’s model is to offer an extensive list of services to generate greater engagement, and this has led to a number of positive benefits for the company: higher sales, profitability at scale and protection against pressure in its core business, what is lending.

There is no reason to suspect that this will change anytime soon, and a year from now we can expect membership and engagement to be significantly higher than today.

Lending Segment: Improvement

Let’s talk about this lending pressure. This is the main reason why investors have recently exited SoFi shares. Lending is by far its main segment, accounting for 55% of total revenue in the second quarter, although this percentage is lower than in the past.

Management outlines the expansion model and how financial services is growing at a rapid pace, growing 80% year-over-year in the second quarter. It is true and inspires confidence.

But also because the lending segment has not grown much. Loan income rose just 3% year over year in the second quarter.

The lending business also accounts for the vast majority of profits. It reported a profit of $198 million in the second quarter, or nearly four times the financial services portion.

Now that interest rates are starting to fall, business is likely to shift back in SoFi’s favor, and SoFi is well-positioned to jumpstart its lending business in the next few months. Specifically, they should be able to capitalize on the renewed interest on student loans and refinancing. If he can do that, he should be able to grow at accelerated rates this time next year.

Revenue: steadily rising

SoFi’s skyrocketing revenue growth has moderated in recent years, but is still strong and consistent. Net income rose 20% year-over-year in the second quarter, and management expects growth of 20% in the third quarter and 18% for the full year.

As the expansion model plays out and lending returns, SoFi’s earnings should grow comfortably a year from now.

Profits: Growing

SoFi became profitable at scale. Often a company will swing back and forth between profits and losses along the way. However, SoFi has been explosively profitable, reporting three consecutive net profitable quarters, and it guides it to remain positive in the third quarter and for the full year.

Analysts are looking for earnings per share (EPS) of $0.11 in 2024 and $0.26 in 2025.

Stock: the big question

Last year at this time, the issue of high interest rates was still a big thorn in SoFi’s side. It hasn’t eased yet, but with the Federal Reserve cutting interest rates, it should start to settle.

SoFi stock trades at a reasonable valuation for its rates and growth potential: 3.5 times trailing 12-month sales and 39 times forward one-year earnings.

It may not go up until the results come in, but the results are likely to come in positive soon and the stock should follow quickly.