1 Cathie Wood Stock to Buy Right Now That’s Up 36% According to Wall Street

Katie Wood is perhaps best known for her upbeat attitude Tesla or palantirbut recently an outspoken investor has been quietly building up a position in a promising fintech player SoFi technologies (NASDAQ: SOFI).

SoFi is currently Wood’s fourth-largest holding in her portfolio exchange funds (ETF) — and she’s not the only one on Wall Street who remains optimistic. Stock research analyst Dan Dolev Mizuho recently raised its price target on SoFi to $14 per share, suggesting a 36% upside from trading levels as of Oct. 29.

Below, I’m going to break down SoFi’s latest earnings report and explain why I see several tailwinds that could drive further gains for investors.

Another great quarter for SoFi

At first glance, I wouldn’t blame you if you think SoFi is a problematic investment opportunity. The financial services industry is incredibly crowded, and it’s understandable that smaller players simply don’t have the distribution resources to compete with incumbents like Wells Fargo, Bank of Americaor JPMorgan Chase.

But in recent years, online upstarts have begun to undermine legacy banks and other financial intermediaries. Such companies as Robinhood markets, Coinbase Globaland Block have carved out their own unique pockets by dominating areas like crypto investing, small business loans, and even stock trading.

SoFi, for its part, has joined its cohorts and is emerging as a digital banking star. Unlike Wells Fargo and other big banks, SoFi doesn’t brick soluble locations Instead, the company offers services such as loans, insurance, banking and investments, all online through its app.

Online banking is becoming more common, and SoFi is leading the way. In the three months ended September 30, SoFi had 9.4 million users, up 35% from last year. What’s even better is that its members use over 13.6 million products. This means that each SoFi member uses an average of 1.5 products, highlighting the company’s ability to cross-sell additional services to users.

The profitable opportunity for SoFi is that the company is quietly building a one-stop shop for a range of financial needs, which should make the division’s economics more efficient in the long run.

During the third quarter, SoFi’s revenue grew 30% year-over-year to $689 million, and it generated more than $60 million in net income, its fourth consecutive quarter of profitability.

Image source: Getty Images.

Why the future looks bright

It’s clear to me that SoFi’s approach to building trusted financial services is coming to fruition. And while revenue growth and consistent profits have become staples of SoFi’s earnings reports, I think investors should remember that the journey is just beginning.

SoFi’s biggest source of revenue is its suite of loan products. However, high interest rates have hampered SoFi’s lending segment over the past few years.

There are a few important things to note about interest rates. First, despite modest growth in SoFi’s biggest revenue stream over the past couple of quarters, the company still managed to generate modest margins. It was able to do this by generating growth through non-credit products. This development reinforces the idea that SoFi’s user base is becoming increasingly platform-dependent and using the app for more than just one of their financial needs.

Second, I think that The Federal Reserve is set to continue cutting rates after its reduction back in September. The 50 basis point (0.5%) cut has already rejuvenated SoFi’s lending business. During the third quarter, SoFi generated $392 million in lending revenue, up 15% year-over-year.

If the Fed continues to cut rates, I think SoFi’s loan business will continue speed up. In turn, I believe that the company is able to increase profits and become an even stronger financial enterprise.

Let’s take a look at SoFi’s valuation

As I’ve written before when evaluating SoFi intrinsic value is quite difficult at this stage of the company’s life cycle.

I don’t think the price-to-book (P/B) ratio, which is commonly used to value banks, is entirely accurate because SoFi is much more than a traditional bank. However, despite the company’s profitability, its net income is still quite modest, so I also don’t think earnings-based metrics are appropriate at this stage either.

To me, SoFi is more of a technology service that evolves into a ubiquitous platform that offers users a variety of financial services. This is why I think SoFi should be rated with a sum-of-the-parts (SOTP) methodology..

As SoFi’s non-lending products continue to grow, the company should start reporting increased margins and further growth in earnings and cash flow. In turn, I believe it would be appropriate to value SoFi based on multiples associated with technology and software businesses, as opposed to the lower multiples typically used when valuing banks.

For these reasons, I agree with Wood’s bullish stance and Dolev’s expectations for more upside for SoFi stock. Now is a great time to buy the stock and hold it for the long term, as SoFi enters a new phase of growth thanks to a growing customer base, accelerating revenue and rising profits.

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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions in Block, Coinbase Global, Palantir Technologies, SoFi Technologies and Tesla. The Motley Fool has positions in and recommends Bank of America, Block, Coinbase Global, JPMorgan Chase, Palantir Technologies and Tesla. A motley fool has a disclosure policy.