Shares of SoFi Technologies, Inc. SOFI have surged 121% in the past six months. This rise is significant, especially compared to the 13% rise in its industry.

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Given this remarkable upsurge, you may wonder if the current level still offers a buying opportunity. Let’s find out.

Rate Cuts, Policy Shifts Drive SOFI's Surge

The Federal Reserve's recent rate cuts have significantly boosted SOFI by alleviating pressure on its lending business. Lower interest rates reduce borrowing costs, encouraging more customers to take loans and refinance existing ones. This improves SoFi’s loan origination volumes and enhances its overall profitability.

Additionally, the reduced cost of capital supports SoFi's ability to expand its lending capabilities while maintaining competitive interest rates. These rate cuts are particularly beneficial in a challenging macroeconomic environment, where borrowers seek affordability, giving SoFi an edge in growing its customer base and improving its financial performance. This rate cut extended a trend of reductions throughout 2024, which is expected to continue into 2025.

SOFI's student loan-refinance business stands due to less generous loan-forgiveness policies under the Trump administration. Stricter forgiveness criteria may prompt borrowers to seek refinancing options to lower repayment costs, creating opportunities for SoFi to expand its customer base. By offering competitive rates and flexible terms, SoFi is well-positioned to attract borrowers seeking relief from higher repayment burdens. This shift in policy could revive demand for private refinancing, which had slowed under broader forgiveness programs. As a result, SoFi’s refinance segment could experience increased growth, contributing to its overall revenue and strengthening its position in the market.

Overall, continuous digitalization across all industries, particularly in the financial sector, presents a significant opportunity for SOFI. As a company focusing on online banking and offering a comprehensive suite of products and services, SOFI is well-positioned to benefit from this trend.

The demand for online financial platforms is expected to rise, and SOFI's technology platform, Galileo, is integral to its banking business and is being adopted by other financial firms. This expansion positions SOFI to capture more market share from traditional banks. Conventional banking giants like JPMorgan JPM, Bank of America BAC and Wells Fargo WFC are more mature and are experiencing slower growth.

SOFI Has Strong Fundamentals

In the fourth quarter of 2024, the company achieved a 19% year-over-year increase in net sales. The highlight was a gain in profitability, with SoFi achieving a gigantic 594% year-over-year increase in net income.

This profitability improvement reflects SoFi's strong operating leverage, as its larger scale supports a more efficient cost structure. Scalability remains critical to its success, with management focused on aggressive growth in key metrics. Adding 785,000 new members during the quarter, the highest in absolute terms, strengthens SoFi's ability to drive cross-selling opportunities and lower customer acquisition costs, enhancing long-term profitability.

All three business segments contributed to revenue growth in the fourth quarter. Lending and Technology Platform revenues grew respectively 18% and 6% year over year, while the Financial Services segment soared with an impressive 84% increase.

The Zacks Consensus Estimate for SOFI’s 2025 earnings is pegged at 28 cents, indicating substantial growth of 86.7% from the previous year. In the past 60 days, there were two upward revisions in earnings estimates for 2025 with one downward revision.

SOFI Stock Looking Pricey

SOFI's stock seems overvalued following its recent impressive surge. The forward 12-month Price/Earnings ratio stands at 52.07X forward earnings, which is way higher than the industry’s average of 16.34X.

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Moreover, the stock is trading above its 50-day moving average and may face a correction as overbought conditions emerge.

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Wait for a More Favorable Entry in SOFI

The stock’s recent performance seems promising, but the current high valuation suggests that waiting for a more favorable entry point would be a prudent strategy. As the financial sector continues to evolve, SOFI’s innovative platform and strong market position indicate that it remains a company to watch. However, timing the investment is crucial for maximizing returns.

SOFI currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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