SoFi Technologies has delivered a 3 year share price gain that is hard to ignore, yet with the stock now around US$17.16 and recent returns turning weaker, the real issue for you is whether that price is properly supported by the returns the business earns on its capital.
- Over the past 3 years, SoFi Technologies has returned about 132%, which puts real pressure on the company to justify that move through the quality and durability of the returns it generates on each dollar it reinvests.
- The launch of SoFi USD as a fully reserved, bank issued stablecoin on the Mastercard network may support expectations that the bank charter and payments platform can widen the opportunity set for fee and interest income, which matters for how efficiently SoFi can put its capital to work.
- If you'd rather focus on earnings, this one's for you. See what SoFi Technologies's 34.8x P/E says about the price.
The stock's next move may depend on whether the returns SoFi can earn on its capital are strong and reliable enough to make the current valuation look sensible.
If you are weighing whether SoFi Technologies' recent 3 year return of about 132% is justified by the returns it earns on its capital, it can help to compare that question across 29 high quality undervalued stocks.
Does SoFi Technologies Look Pricey on Excess Returns?
The Excess Returns model looks at how efficiently SoFi Technologies turns its equity base into profits above its own cost of capital. It compares the earnings power implied by future return on equity to what shareholders are paying today at US$17.16.
SoFi’s current book value is $8.58 per share and the model uses a stable book value estimate of $10.32 per share. On those equity levels, stable EPS of $0.92 per share versus a cost of equity of $0.83 per share implies only a modest excess return of $0.08 per share, built on an average return on equity assumption of 8.89%. That leaves the Excess Returns projections pointing to an intrinsic value that is substantially below the current share price.
The recent launch of SoFi USD on the Mastercard network may help the business find new ways to put that equity base to work. However, the model still treats those returns as relatively measured rather than aggressive. If you want to see the full Excess Returns calculation and how each input feeds into the estimated worth, you can compare SoFi Technologies to other stocks on. Find out what SoFi Technologies could be worth using our Excess Returns estimate.
The SoFi Technologies Narrative: What Would Justify Today's Price?
Narratives for SoFi Technologies pick up where the valuation puzzle leaves off and map out which paths for growth, margins and earnings would need to play out for the shares to be worth materially more or less than today’s price, using SoFi Technologies' Community page as the home for those scenarios. Instead of a single output from a model, these storylines spell out the future that valuation depends on so you can watch in real time whether reality is tracking the script.
Community views on SoFi Technologies pull in the same direction on quality but differ on how much upside is left from here.
Bull case: 25% undervalued
"SoFi has built a self-funding deposit base that legacy banks cannot replicate, while its B2B Technology Platform is quietly becoming the operating system for global fintechs..."
Discover why this Narrative puts SoFi Technologies at 25% undervalued.
Bear case: roughly fairly valued
"The primary risk is its high valuation (Forward P/E around 27x), which requires flawless execution of its stated plans..."
Explore why this Narrative puts SoFi Technologies at roughly fairly valued.
For SoFi Technologies, the share price is only one piece of the decision
Before you lean too much on any valuation model for SoFi Technologies, it is worth knowing that our research checks have also flagged specific areas of concern that could change how you see the risk profile. Take a closer look at 1 major warning sign before settling on a valuation.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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