It would be great if the stocks we owned could take us on a smooth journey of positive returns. But that’s just not how the market works. SoFi Technologies (SOFI 1.41%) is a perfect example of this challenge.
The digital banking powerhouse has seen its shares soar 86% in the past 12 months. However, they currently trade at a surprising 50% below their peak from February 2021. For some opportunistic investors, this dip might be too hard to ignore.
But before adding the fintech stock to your portfolio, here’s one risk you need to know.
Image source: SoFi Technologies.
SoFi is moving away from its roots
SoFi was founded in 2011. Its primary business activity early on was to help students pay for college. Offering student loans was the company’s bread and butter. Things have changed dramatically.
Since the start of 2022 through the first quarter of this year, SoFi originated $46.7 billion worth of personal loans. That’s significantly higher than the amount of student loans ($9.8 billion) and home loans ($4.3 billion) it originated. As of March 31, personal loans are by far the biggest lending product on the balance sheet.
Unlike student or home loans, personal loans can be used for a variety of different purposes, like consolidating debt, paying for a wedding, or taking care of medical bills. And because they aren’t secured by anything, they are inherently riskier to the lender. That’s why they carry a higher interest rate. The weighted average coupon rate on a SoFi personal loan is 13.3%, more than double the 6.01% for student loans.
This adds risk to SoFi’s business, especially in uncertain economic times, such as when a recession threatens — as it does now. Borrowers might not prioritize making their payments on time, which could lead to more losses for the business. It doesn’t help that consumer sentiment in the U.S. is at its second-worst level ever or that credit card delinquencies are near their 10-year high.
For what it’s worth, the leadership team doesn’t seem too concerned. “Our personal loan borrowers have a weighted average income of $158,000 and a weighted average FICO score of 743,” CFO Chris Lapointe said on the Q1 2025 earnings call.
Is SoFi still a smart buy on the dip?
It’s critical that investors pay attention to any risks faced by the companies they own. If they own a banking entity, they need to understand the composition of its loans. SoFi’s surge in personal loans shouldn’t discourage prospective investors, though.
It’s easy to be optimistic about SoFi’s growth prospects. Revenue and customers jumped 20% and 34%, respectively, in the latest quarter, which demonstrates that there is still a long runway to take advantage of. The company’s all-digital offerings are clearly resonating with people seeking a better user experience when it comes to handling their money.
After generating $499 million in net income in 2024, SoFi registered $71 million in net income during Q1 2025. After years of operating in the red, the business is now a money-making machine. The consensus analyst estimate is that earnings per share will rise 87% between 2024 and 2027.
As the stock is trading 50% off its peak, I think there is upside for long-term investors. Of course, there’s always risk involved. Besides rising personal loans, SoFi faces stiff competition in the financial services industry. There are numerous other fintech offerings on the market, not to mention the products and services from the massive banks that are the industry incumbents.
Nonetheless, SoFi’s success thus far speaks volumes. Investors willing to take on added risk for potentially bigger returns should think about adding the stock to their portfolios while it’s on the dip.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
