SoFi (SOFI) is having a dismal run in 2026, with shares down over 30% for the year. SOFI stock seems to be taking a breather after three years of outperformance relative to the S&P 500 Index ($SPX). Meanwhile, the stock’s price action seems at odds with its recent financial performance, as earnings have been strong with CEO Anthony Noto describing Q2 as “nothing short of an exceptional quarter.” The markets, however, don’t seem to be buying into the management’s optimism as reflected in the stock price.
www.barchart.comWhile I booked profits in SOFI stock last year as it moved past $30, I have since bought the dip in this fintech name. However, the stock has been getting cold feet near $20 and has failed to break above that level decisively for over six months. Let's examine the disconnect between SOFI’s price movement and earnings and analyze what it would take to move the stock.
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SoFi’s Q2 Earnings
While any company's management usually has the propensity to overuse adjectives like “exceptional,” Noto wasn’t exaggerating. The company added 1.1 million new members in Q2, marking the third consecutive quarter when it added over a million members. Its cross-sell rate also improved in the quarter, with the number of products rising twice as much as the new members. Moreover, over half of the new products were opened by existing members, which is quite encouraging. Its loan originations also rose to a record high of $14.8 billion.
The company’s SoFi Plus subscription is also gaining traction, and it crossed 200,000 subscribers in the quarter, implying annualized revenues of $24 million. The management is hopeful about that number hitting 1 million in a year, which would mean an annualized recurring revenue run rate of $120 million.
The strong growth in members and cross-sell flows down to SoFi’s earnings, and its adjusted revenues rose 40% year-over-year in Q2, while adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) rose 44% to a record $358 million. Its GAAP net income rose 60% to $156 million in the quarter. The company also raised its full-year revenue guidance but held back on increasing the EBITDA guidance, which spooked markets.
The management, however, said that it wasn’t raising EBITDA guidance because it now expects two rate hikes this year versus the original assumption of two rate cuts. Also, the company is increasing its investments to drive long-term sustainable growth.
Notably, higher interest rates are theoretically negative for SoFi, and expectations of interest rate hikes have been among the reasons the stock has underperformed this year. Moreover, while SoFi’s credit quality actually improved in Q2, there are fears that higher inflation and a tepid macro environment might push up delinquencies.
I would say that SoFi stock has sagged not because of its financial performance but because of an unconducive macro environment. However, I believe it would pay to be patient with SoFi, which is among the rare success stories from the former special purpose acquisition company (SPAC) universe. The company hasn’t only consistently delivered stellar double-digit topline growth but has also turned profitable. It should be able to deliver double-digit earnings growth for the foreseeable future given the strength of its growth flywheel.
SOFI Stock Looks Reasonably Valued
From a valuation perspective, SoFi is getting increasingly attractive amid the stock’s underperformance. While SOFI stock has sagged, the company’s book value continues to rise and stood at $8.58 per share at the end of Q2. This implies a price-to-book value multiple of under 2.1x, which is not exorbitant. For context, the corresponding multiples for JPMorgan Chase (JPM) and Bank of America (BAC) are 2.70x and 1.62x, even though they are growing at a much slower pace than SoFi.
www.barchart.comSoFi appears attractive based on earnings-based multiples as well, and while the forward price-to-earnings (P/E) multiple of 29.75x might appear elevated compared to traditional banks, the P/E-to-growth multiple is actually below 1x, considering the earnings growth SoFi is expected to deliver. All said, the macro environment would need to improve to trigger a rally in SOFI, as the stock continues to be in the penalty box amid concerns over inflation and expectations of higher interest rates.
On the date of publication, Mohit Oberoi had a position in: SOFI . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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