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Think Sofi Is Expensive? This Chart Might Change Your Mind.
SoFi Technologies (NASDAQ: SOFI) is only the 67th-largest U.S. bank by assets, but it's caught a lot of attention for its all-digital, high-growth platform. The lending and financial services platform has graduated from a hyped-up, overvalued, and unprofitable business to a solid, proven, and a profitable one.
However, it still looks like SoFi's shares sport a premium price tag on the surface, but it might not be as expensive as you think. Let's see why.
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Take a look at this chart
According to standard valuation metrics, such as the forward 12-month price-to-earnings or price-to-sales ratio, SoFi stock might easily appear expensive at 63 times earnings and 5.6 times forward 12-month sales, respectively.
At the same time, there's no doubt the stock could demand a premium because of the business's unmatched underlying growth in U.S. banking.
In fact, when you incorporate growth estimates on the Street for SoFi, the stock doesn't look all that expensive. Consider its forward one-year price/earnings-to-growth ratio and its price-to-book value as compared with JPMorgan Chase and Wells Fargo.
SOFI PEG Ratio (Forward 1y) data by YCharts.
Then consider that SoFi's revenue has grown 262% since it went public in 2021, while JPMorgan Chase's revenue has increased just 40% over the same period, and Wells Fargo's is up 10%.
Are these growth estimates reliable?
SoFi's CEO, Anthony Noto, envisions it becoming a top-10 bank, saying it's only a matter of time.
The catalyst behind the growth is a genuine fusion of finance and technology. That means even though its services comprise classic banking products, its use of technology makes it a different beast, and that's harder to value with classic bank valuation metrics.
While there are cheaper bank stocks, what stand stands out about SoFi stock is it's still trading within the range of a traditional bank stock in spite of a much faster growing underlying business. And since the fintech platform is still so much smaller, it's all the more reason to expect incredible expansion opportunities. At this price, SoFi stock looks quite attractive.
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Wells Fargo is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Jennifer Saibil has positions in SoFi Technologies. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
