The Nasdaq does not make pretty viewing at the moment. Due to the rout in growth stocks, it has fallen 30% year-to-date. In the past year, it has sunk 14%. This poor performance has been driven by rising inflation, which has also forced the Fed to raise interest rates. This makes it more expensive for companies to borrow, a factor that can stunt growth. However, as a long-term investor, this dip has offered a prime time to pick up shares on the cheap. A great example is SoFi Technologies (NASDAQ: SOFI), a FinTech that went public via a SPAC at the end of 2020.
SoFi started life as a public company in a very positive way. Indeed, the company’s price managed to double within just a month, reaching peaks of over $25 at the start of January. However, this meant that SoFi commanded a price-to-sales ratio of around 30, which was considered far too expensive. Considering the difficult macroeconomic environment, the share price has, therefore, sunk since this moment, currently priced at under $6.
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However, its trading updates haven’t shown any signs of problems. In fact, in the most recent quarterly update, net revenues reached $330m, which was a year-on-year increase of 69%. This was far higher than analyst expectations. Furthermore, the company recorded adjusted EBITDA of $9m, which was positive for the seventh straight quarter. Although the firm has not yet reached profitability, this is a sign that it may not be too far away.
The forward guidance was also reassuring. Indeed, full-year 2022 net revenue is expected to reach over $1.5bn, and adjusted EBITDA should exceed $100m. This highlights that, unlike many other growth stocks, SoFi is still able to perform well in the difficult macroeconomic conditions.
Despite these major positives, there are several concerns that I have about SoFi.
Firstly, the student loan moratorium in the US continues to be extended. As one of SoFi’s divisions revolves around student loans, this continues to have a major impact for the firm. However, I believe this factor has been well priced-in. Indeed, management already expects the moratorium to be extended throughout 2022, and this has seen the firm focusing on other divisions. Accordingly, I hope that the diversification of SoFi will mitigate the impacts of this.
More importantly, I worry about its amount of share-based compensation, which is diluting shareholders’ interests. Indeed, in the first three months of this year, share-based expenses totalled $77m, one of the main reasons for the company’s heavy loss. This is certainly a risk moving forwards.
What am I doing with this growth stock?
At under $6, I believe that SoFi is now an absolute bargain. In fact, the company now has a forward price-to-sales ratio of just over 3, which is historically low. With revenues growing 69% in the first quarter, and no clear signs of slowing growth, this seems far too cheap. At this price, I’ll continue to add this growth stock to my portfolio.