Has SoFi Run Too Far After Its 168.8% Rally?

• Wondering if SoFi Technologies is as good a buy as it seems? You are not alone. Many investors want to know whether its share price reflects real value or just hype.
• The stock has jumped 110.0% year-to-date and a remarkable 168.8% over the past year, signaling that the market is paying close attention to SoFi’s growth story and may be rethinking its risk profile.
• Investor optimism has been fueled by big news around the company's continued expansion in digital financial services, as well as its growing presence in the personal lending and banking segments. These headlines have contributed to a sharp uptick in attention and might explain some of the recent share price surge.
• But when we step back and look at the numbers, SoFi currently has a 0/6 valuation score, suggesting the stock is not undervalued by any of the traditional valuation checks. We will break down what that means and explore the standard valuation approaches. At the end, we will reveal a more insightful way to value SoFi Technologies.

SoFi Technologies scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: SoFi Technologies Excess Returns Analysis

The Excess Returns model evaluates how efficiently a company puts investor capital to work by comparing its return on equity (ROE) to the cost of equity. In other words, it looks at whether SoFi Technologies generates returns on its invested funds above what shareholders require for taking on risk. This is a core test of long-term value creation.

For SoFi Technologies, the current Book Value stands at $7.29 per share. Analysts estimate a stable Earnings Per Share (EPS) of $0.69, based on weighted future Return on Equity projections from five analysts. The company’s Cost of Equity is $0.62 per share, indicating that its Excess Return is just $0.07 per share. This means the average Return on Equity is 8.97%. The stable Book Value is projected to rise slightly to $7.68 per share, as forecasted by seven analysts.

When these numbers are plugged into the Excess Returns model, SoFi Technologies appears to deliver only a slim margin above its cost of capital. This suggests limited ability to generate enduring shareholder value based on this method. The resulting intrinsic value is substantially below the current share price, indicating the stock is 225.6% overvalued by this analysis.

Result: OVERVALUED

Our Excess Returns analysis suggests SoFi Technologies may be overvalued by 225.6%. Discover 832 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for SoFi Technologies.

Approach 2: SoFi Technologies Price vs Earnings

The price-to-earnings (PE) ratio is a time-tested valuation metric, especially relevant for profitable companies like SoFi Technologies. It gives investors a snapshot of how much the market is willing to pay for each dollar of earnings, making it a useful tool for comparing valuations across similar businesses.

A "normal" or "fair" PE ratio can vary widely between companies and industries. This is typically influenced by expectations for future earnings growth, the stability of those earnings, and the overall risk associated with the business. Higher growth potential and less risk often justify a premium PE, while lower growth or higher risk warrant a discount.

Currently, SoFi Technologies trades at a PE ratio of 57.60x. This stands well above the Consumer Finance industry average of 10.62x and even higher than the peer average of 49.71x. At first glance, this steep premium suggests the market expects significant future growth or sees SoFi as a lower risk relative to traditional peers.

This is where Simply Wall St's proprietary "Fair Ratio" adds another layer of context. The Fair Ratio, set at 23.89x for SoFi Technologies, factors in much more than standard benchmarks. It estimates a tailored multiple based on metrics like earnings growth, profit margins, company size, and sector risks. This makes it far superior to simple industry or peer comparisons.

Comparing SoFi Technologies’ current PE multiple of 57.60x with its Fair Ratio of 23.89x, the stock appears significantly overvalued using this approach.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1410 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your SoFi Technologies Narrative

Earlier, we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is more than just a set of numbers; it is your personal story or viewpoint about a company, explaining the reasons behind your assumptions for fair value, future revenue, earnings, and profit margins.

Unlike traditional models, Narratives connect a company's unique story to a financial forecast and ultimately to a dynamic fair value estimate. This approach empowers you to see how changing business conditions, news, or fresh earnings results can immediately impact your valuation. It helps you make smarter buy or sell decisions by directly comparing Fair Value to the current share price.

Narratives on Simply Wall St are approachable and easy to create, and you will find them on the Community page used by millions of investors. They are updated automatically as new information becomes available, allowing all investors to adjust their expectations in real time.

For example, one investor’s Narrative for SoFi Technologies may be optimistic, forecasting robust revenue growth, margin expansion, and a fair value as high as $30.00. A more cautious Narrative might assume tighter profit margins, slower growth, and set fair value at just $6.00.

Do you think there's more to the story for SoFi Technologies? Head over to our Community to see what others are saying!

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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