SoFi Technologies (SOFI)’s Falls -7.31%. Is It Fairly Valued?

SoFi Technologies was one of the market's biggest losers today, losing -7.31% of its value and underperforming the S&P500 and Dow Industrial composite indices by 6.62% and 6.87% respectively. The mid-cap Finance company ended the day at $5.64, but is still well above its 52 week low of $4.24 and is 25.53% below its average target price of $7.58. Over the last 12 months, SoFi Technologies is down -35.28%, and has underperformed the S&P 500 by 28.48%. The stock has an average analyst rating of buy.

We can also understand a stock's valuation by looking at its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the present value of the company if it were liquidated today. SoFi Technologies's P/B ratio of 0.842 indicates that the market value of the company is less than its market value, which indicates the company is potentially undervalued.

SoFi Technologies is likely to attract many investors on the basis of its strong gross margins, which indicate that it either has an exceptional competitive advantage, or that its particular product or services involve very few direct costs:

Date Reported Revenue (k) Cost of Revenue (k) Gross Margin YoY Growth
2022-12-31 $1,762,810 $313,226 82.23% 7.67%
2021-12-31 $1,087,648 $256,980 76.37% 0.25%
2020-12-31 $751,138 $178,896 76.18% n/a
  • Average gross margins: 78.26 %
  • Average gross margins growth rate: 2.64 %
  • Coefficient of variability (lower numbers indicate more stability): 4 %

Don't let the above fool you. Such high gross margins need to be considered alongside the company's operating margins, which take into account overhead:

Date Reported Revenue (k) Operating Expenses (k) Operating Margin YoY Growth
2022-12-31 $1,762,810 $1,620,457 -20.43% 59.5%
2021-12-31 $1,087,648 $1,277,203 -50.44% 1.58%
2020-12-31 $751,138 $772,379 -51.25% n/a
  • Average operating margins: -40.71 %
  • Average operating margins growth rate: 20.36 %
  • Coefficient of variability (lower numbers indicate more stability): 43 %

We can see that in fact, SoFi Technologies's significant overhead eliminates its profits from sales entirely. The company is not profitable.

Our final point of analysis is SoFi Technologies's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for SoFi Technologies is as follows:

Date Reported Cash Flow from Operations (k) Capital Expenditures (k) Free Cash Flow (k) YoY Growth
2022-12-31 -$7,255,858 $93,201 -$7,349,059 -424.01%
2021-12-31 -$1,350,217 $52,261 -$1,402,478 -178.33%
2020-12-31 -$479,336 $24,549 -$503,885 n/a
  • Average free cash flow: $-7,349,059,000
  • Average free cash flow growth rate: -200.78 %
  • Coefficient of variability (lower numbers indicating more stability): 121%

This is the pool of liquidity that the company can use to reinvest in its business and to pay its equity investors a dividend. Over the last twelve months investors in SoFi Technologies have enjoyed a dividend yield of 0.0%, but with its negative recent cash flows, the company may not be able to keep this up.

SoFi Technologies does not meet the traditional definition of a fairly valued company. Unless the company has strong qualitative factors in its favor, most value investors will probably prefer to avoid this stock.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.