Should you buy SoFi stock?

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SoFi Technologies is attempting to disrupt the finance industry and its doing so across three main segments. Lending, technology and financial services.

All three segments have shown rapid growth over the past few years.

In the latest quarter, lending revenues were up 43% to 302 million, technology revenues were up 69% to 85 million and financial services revenues were up 288% to 49m.

SoFi banking now offers 3.25% on savings accounts and that’s helping Sofi to take market share from the big banks. As a result, total banking deposits at Sofi were up 86% to $5 billion.

All of this growth is set to contribute to top line revenue of around 1.52 billion for the full year with an adjusted ebitda estimate of 117.5 million.

With an enterprise value of 7.8 billion that means SOFI stock is now valued at around 5 times revenue or 66 times adjusted EBITDA. That’s perfectly reasonable considering the rewards on offer.

And this growth comes despite the moratorium on student loan payments that’s put a dent in SoFi’s student loan business.

So far so good. However, when you account for stock based compensation and other expenses, SOFI is not yet a profitable business. Net income over the last 12 months was negative 391 million.

And when you put the total value of SoFi bank deposits in context, the $5 billion pales in comparison to rivals. As this chart by Steven Fiorillo shows, even small regional banks have more deposits than SoFi.

Of course, this also underlines the growth potential if SoFi can continue to take market share.

But, with the US yield curve highly inverted, the probability of a recession next year is sky high.

In a recession, loan delinquencies rise, which puts pressure on banks' balance sheets, and banking stocks will come under pressure if they’ve made bad loans. That’s the key risk to fintech stocks right now and explains why SoFi is down so much year to date.

Overall, SoFi stock has the potential to be a multibagger. But financial companies are not my area of expertise. That’s why I’d prefer to see how this company navigates a recession before choosing to invest. I’d also like to see an improvement in net income.

And that’s why I currently give this stock a neutral rating. But these are my personal opinions, not financial advice and I hold no position in SoFi stock. For more detailed analysis, visit our website.