Big Insider Buying at SoFi: Should You Follow?

Big Insider Buying at SoFi: Should You Follow?

CEO Anthony Noto and director Harvey Schwartz have been buying SoFi stock hand over fist over the past month.

Investors seem to be pricing in a recession before it has occurred, so financial stocks have sold off hard. Hit even harder? Newer fintech stocks , which have come onto the public markets within the past five years.

That’s because fintechs don’t have a long track record to make investors comfortable. After all, it’s hard to know how good a lender’s underwriting is until after the fact.

Still, many new fintechs do have innovative technology and businesses models, and several operate on the prime end of the credit spectrum, contrary to popular belief.

SoFi ( SOFI 4.21%) is one of those stocks, and both its CEO and one director have been buying lots of stock over the past month on the open market. With the stock down 62.5% year to date and 80% from its all-time highs, could this mark a bottom for SoFi? Consistent buys over the past month

Starting on May 13, CEO Anthony Noto began buying SoFi shares, adding to his stake on dips, for a cumulative addition of more than 350,000 shares over the past month for more than $2 million, increasing his stake by more than 11%.

Also between those dates, board member Harvey Schwartz bought just under $400,000 worth of stock, a 24.1% increase to his stake, with most of it coming on Monday, June 13.

Insider buying is certainly a show of CEO confidence and could be a bullish sign — especially with the stock down so much. Moreover, these buys mark a significant amount of money, even by CEO standards.

However, CEOs can also have blind spots about the macroeconomic picture and aren’t always right. After all, many technology software CEOs made large insider buys back in December, only to see unfortunate large declines in their stocks since that time. SoFi’s business model could get it through a difficult economy

When assessing fintech stocks, investors need to know the segment of the population it’s targeting. Fortunately, SoFi is targeting a fairly secure segment of the market. Since the company started as a student loan provider and refinancer, it has targeted mostly highly educated people in promising fields, and then cross-selling these well-off consumers with other products such as home loans, personal loans, brokerage and trading, and debit and credit cards. In February, the company received a bank charter, allowing it to collect low-cost deposits and reduce regulatory costs.

SoFi’s student loan customers now make an average of $160,000, with a FICO score of 746. The average salary for its personal loans was $170,000, with an average FICO score of 775. And as of the company’s last earnings report, its charge-off rates remained very low.

This could, of course, change if the economy goes into a recession; however, given the prime customer base, it’s likely SoFi will be able to weather a downturn and make it to the other side. SoFi is still a growth stock

While SoFi is looking more and more like a bank after receiving its charter, unlike most mature banks, it’s growing fast but also losing money. Last quarter, SoFi grew revenue by 49% on an adjusted basis to $321 million, with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) just above breakeven at $8.7 million. On a GAAP basis , net losses did improve from $177 million to $110 million, but are obviously still negative.

Still, SoFi’s business saw a steady uptake in membership, with its third highest quarter ever of customer acquisition, resulting in more members using more products. While the company is still losing money, the lending and technology segments are all contributing positively, with the company’s fast-growing financial products segment operating at a contribution loss.

Apparently, there is quite a lot of investment that needs to happen in the financial products segment before revenue flows in. These products include checking and savings accounts, credit cards, and an investing brokerage. However, the financial products segment grew revenue 264% off a small base, while costs grew only 74%. So margins should improve as these offerings scale.

Moreover, since SoFi got its bank charter in February and began offering a 1.25% interest rate on its new accounts, it has attracted a lot of deposits at a rapid rate, totaling $1.2 billion at the end of the first quarter, up to $1.5 billion as of the early May earnings call, and growing about $100 million per week.

With the bank now live, SoFi could see very strong growth through […]

source Big Insider Buying at SoFi: Should You Follow?

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