Here's What $25,000 invested in SoFi Stock Could Look Like in 5 Years

SoFi Technologies (SOFI +1.11%) stock hasn't fared so well this year. This digital banking disruptor has been reporting solid performance, but its stock is down 32% year to date.

Is this an opportunity or a value trap? Let's see where SoFi stock might be in five years to make that determination.

Banking in the palm of your hand

SoFi has developed a consumer banking app that it calls a "one-stop shop" for a user's financial needs. It's introducing a plethora of products and services that range from the traditional to the cutting-edge. It was one of five brokerages to offer retail investor exposure to Space Exploration Technologies' (SpaceX's) initial public offering (IPO), and it was the first to offer access to it through a fund when it was still a private company. These kinds of offers help it stand out and trailblaze in a crowded industry with a lot of legacy players.

It's attracting new users like a magnet, including a record 1.1 million in the first quarter, and the business is growing fast. Adjusted net revenue growth accelerated to 41% year over year in the quarter, and earnings per share (EPS) increased from $0.06 to $0.12.

You might ask why SoFi stock has plummeted this year if it's performing so well. The answer, I believe, is that it was quite expensive beforehand and, therefore, subject to higher market scrutiny. When you dig in deeper, there are some places where it fell short in the quarter. For example, its tech platform segment, which encompasses its business-to-business infrastructure, has been mostly mediocre since SoFi acquired its component businesses in 2020. In the first quarter, revenue fell by 27% from last year due to the exit of a large customer, and customer count decreased 16%.

These kinds of showings overshadowed the performance of what's essentially a growing company with tons of momentum. And it's currently trading at less than 40 times earnings, which is a good deal for a high-growth company.

What might be happening in five years

Given that introduction, I'm comfortable saying this is an opportunity instead of a value trap, and I envision the stock being much higher in five years. If the company grows at a compound annual growth rate of 25% over the next five years, which I think is a fair estimate considering its acceleration, adjusted net revenue would be $15.6 billion. Adjusting the price-to-sales ratio somewhat lower from 4.6 today to 3, since it's likely to go down over time, brings the market cap to $46.8 billion, slightly more than double today's total, and $25,000 would be 109% more, or $54,500.