SoFi Technologies, Inc.’s stock price has surged to a price of $15.6 today. Ending the day with a 3.9% increase, SOFI shares outperformed the S&P500 and Dow Industrial composite indices by 4.0% and None% respectively, closing in on their 52 week high of $15.75 Over the last 12 months, SoFi Technologies is up 121.9%, and has outperformed the S&P 500 by 90.7%. Now, the Large-Cap Finance company is 54.97% above its average target price of $10.07 and has an average analyst rating of hold.
SoFi Technologies's trailing 12 month price to earnings (P/E) ratio is 130.0, which is its share price divided by its trailing earnings per share (EPS) of $0.12. The company has a forward P/E ratio of 53.8 based on its forward EPS of $0.29 -- which is an estimate of future earnings provided by management. The P/E ratio tells us how much investors are willing to pay for each dollar of the company's net earnings from its sales operations. By way of comparison, the average P/E ratio of the Finance sector is 20.04, but a company's price can remain stable for a long time even if it is over or undervalued.
An alternative form of measuring a company's valuation is to focus on its Price to Book (P/B) Ratio, or the company's market price per share divided by its book value per share. The book value refers to the present value of the company if it were to be liquidated today (i.e. selling all assets and paying off all debts). SoFi Technologies's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 3.0, but is still below the average P/B ratio of the Finance sector, which stands at 1.86.
SOFI's average free cash flow in recent years is $-3333735200.0. This represents the sum of inflows and outflows of cash from all sources, including capital expenses. This is the pool of liquidity from which the company can reinvest in its business or pay out dividends to its investors. It comes as no surprise then that no dividends have been issued in the last twelve months. While not ideal, negative free cash flows are common -- especially in capital intensive businesses or after a period of heavy re-investment.
Since it has a a higher P/E ratio than its sector average, an average P/B ratio, negative cash flows, and weak operating margins, SoFi Technologies is probably overvalued at current prices. Make sure to complement this brief quantitative review with a qualitative analysis of your own!
