Is SoFi Technologies (SOFI) a value-priced FinTech or an overvalued Bank? This is a question posed by Mizuho analyst Dan Dolev, who believes this is currently the major debate amongst investors.
Dolev also has a novel answer to the question: “We call SOFI an attractive ‘FinBank’ that is benefiting from the best of both worlds: 1) being a bank helps keep funding costs low, and 2) having the allure of a branded, next-gen FinTech creates a powerful funnel for low-CAC, high-LTV customers.”
Valuation wise, mega-cap banks aside, and compared to banks of differing sizes, it looks like SOFI is trading “in line with the average.” But looking at the EV/Terminal Margin EBITDA compared to a collection of FinTech peers, it appears SOFI shares are going for a “notable discount.”
Whether a bank or fintech player, Dolev thinks SoFi is well-equipped to make it through the difficult economic environment, even if a recession does materialize.
During the last financial crisis, across the two years, super prime borrowers – those with a FICO score above 720 – captured meaningful share of the total loan volume vs. the share of non-super prime borrowers. And when the recovery took place, they kept hold of an “elevated share of the mix.”
Accordingly, given that during difficult economic times high-FICO borrowers have “historically proved stable,” SOFI should be resilient to credit cycles based on the fact it boasts a 746 average FICO score for personal loans.
So, good news for SOFI, but what does it all mean for investors? Dolev rates the stock a Buy, although to “reflect more reasonable near-term upside from current levels,” the analyst lowers his price target from $9 to $7. Should the figure be met, shareholders will be sitting on returns of 12% a year from now. (To watch Dolev’s track record, click here)
The Street’s $9.23 average price target sits a touch above Dolev’s prior objective and makes room for 12-month gains of ~47%. Rating wise, the stock boasts a Moderate Buy consensus rating based on a fairly even 6 Buys and 5 Holds. (See SOFI stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
