More investors should focus on the road ahead rather than the rearview mirror to start monetizing some of the newer ideas and trends about to hit the stock market. Among these is the Federal Reserve and its promise to start cutting interest rates before 2024 is over. According to the CME’s FedWatch tool, these cuts could be here as soon as September, with over 90% certainty.
What that means for the market is a sort of “melt-up” scenario, where everything will see bullish price action on the rate cuts and then some. However, not all stocks are made equal. It seems like those in the technology and financial sectors are poised to do better than most. Investors cannot choose one or the other but combine the two into an incredible growth opportunity.
Sofi Technologies Inc. (NASDAQ: SOFI) is the stock to deliver on this potential. The stock has underperformed the broader S&P 500 by as much as 55% over the past 12 months, getting left behind by most of its peers in both the technology and financial space, but that could soon be about to change. As the company released its second quarter 2024 earnings results, investors could face one of the biggest market catch-up plays today.
SoFi Stock Delivers in All the Ways That Matter
Every business has its set of key performance indicators (KPIs), where markets and investors alike can assess results and determine whether the company—and the stock price—are headed in the right direction. In the case of SoFi, it looks like green checks all over.
In SoFi’s earnings presentation, investors will note that total members grew by 41% over the year to reach 8.7 million, which is also a new high for the company. Of course, having more users doesn’t mean much if there are no ways to monetize.
Following in the playbook of Robinhood Markets Inc. (NASDAQ: HOOD), which is finding every way to monetize its growing user base, SoFi saw 19% annual growth in lending products and 39% growth for financial services products. This attractive growth translates into more earnings, which can excite investors.
Revenue jumped by 22% over the year to reach $597 million, but that’s not even the best part. SoFi managed to swing from a net loss of $47.5 million in the same quarter last year to a net profit of $17.4 million this quarter, which sent investors into positive earnings per share (EPS) territory.
Leaning on what could be consistent and expanding profitability, management felt comfortable issuing even more optimistic guidance. For 2024, investors can expect up to 19% revenue growth, with EPS of roughly $0.10 a share driven by $185 million of net income (ten times the quarterly net income reported).
Wall Street's Bullish Case for SoFi Stock
With all this evidence on hand, analysts on Wall Street couldn’t just sit on the sidelines and let this stock pass them by. This is why there is a consensus forecast for up to 212% EPS growth in the next 12 months, which is still subject to adjustment now that management laid out its own view of the future.
Those at Needham & Company felt comfortable slapping on a $10-a-share valuation for SoFi stock, daring it to rally by 37% from where it trades today. Now, a stock with over 200% growth prospects, growing all of its KPIs at double-digit rates, and achieving new and consistent profitability should command a higher valuation, shouldn’t it?
Maybe analysts are waiting for a higher confirmation level, and this is where the Fed’s promise of cutting interest rates comes into play.
Home prices are still, on average, over 32% more expensive than pre-COVID levels, yet higher-than-normal inflation rates during the period have eroded the average American’s earning power. This widening gap makes homes more expensive, as buying a house now takes roughly 7 to 10 years of the average salary.
Add to this the fact that mortgage rates have been hovering above 7% for most of 2023 and 2024, making any available home on the market as inaccessible as ever for most would-be homebuyers. If and when the Fed cuts interest rates, mortgage rates will come down as well, giving SoFi customers even more momentum to shop for a mortgage with the platform.
More than that, other financial services and products will become more accessible at lower interest rates. Considering that U.S. home listings are starting to tick up, the markets look ready for a potential housing demand boom.
