SoFi shares fall despite bullish outlook. Should investors buy the dip?

Sophie Technologies (SOPHIE -1.16%) Shares fell after third-quarter results, even though the financial services company posted strong results and issued an upbeat outlook. Shares have had a huge month since early October, but are up only modestly year-over-year.

Let’s take a closer look at the company’s recent results to see if this is a buying opportunity for investors.

Improvement trends

SoFi called its third quarter its strongest ever, and the results were quite impressive. The company’s revenue jumped 30% to $697.1 million, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 90% to $186.2 million.

Meanwhile, its tangible book value rose 16% year over year to $4 per share. It grew 2% sequentially.

The company’s results led the financial services segment, which more than doubled its revenue to $238.3 million. Segment profit increased from $3.3 million to $99.8 million.

The growth was driven by the lending platform business, which is essentially a lead generation business by referring borrowers to other parties. Revenue from platform sales increased 5-fold to $55.6 million. This segment also saw a sharp increase in revenue from internetworking exchanges by 211% to $12 million.

Meanwhile, net interest income (NII) in the segment rose 66% to $154.1 million. SoFi said this was due to an increase in customer deposits. Overall, the number of financial products used increased by 33%. Annual product revenue increased 53% to $81.

In the credit segment, revenue increased by 14% to $396.2 million, while net interest income (NII) increased by 19%. Profit from deposits jumped 17% to $238.9 million. Total loan issuance increased by 23%.

Meanwhile, technology segment revenue rose 14% to $102.5 million. Profit from deposits rose 2% to $33 million. The total number of customers jumped 17% to 160.2 million.

From a growth perspective, everything seemed to be working in SoFi’s favor this quarter; all results were strong across the board.

One hit to SoFi was its credit metrics, but the company saw its charge-off rate drop to 3.52% from 3.84% in the second quarter. SoFi did sell some outstanding debt, but said that if it had not done so, its annual net charge-off rate would still have fallen from 5.4% in the second quarter to 5% in the third quarter.

Overall, the company said its consumer loan borrowers have an average income of $164,000 and a weighted average FICO score of 746. Student loan borrowers, meanwhile, have an average income of $135,000 with a weighted average FICO score of 765. So , that’s true. It doesn’t look like the company is lending to subprime borrowers to fuel its growth.

Looking ahead, SoFi forecast full-year adjusted net revenue to be between $2.535 billion and $2.55 billion, representing growth of 22% to 23%. This topped previous revenue forecasts of $2.43 billion to $2.47 billion, representing growth of 17% to 19%. The company also raised its adjusted EBITDA guidance to a range of $640 million to $645 million, up from its previous guidance of $605 million to $615 million.

Is it time to buy some dip?

With a forward price/earnings (P/E) ratio of 45 times and a price/tangible book value (P/TBV) ratio of approximately 2.6 times, SoFi is not cheap based on traditional metrics. However, the company is growing rapidly and its credit quality is consistently improving.

SOFI PE Ratio Data (Forward 1 Year) from YCharts.

Overall, the stock fell despite a strong quarter. There were concerns about loan quality and slower growth, but growth accelerated and loan quality improved during the quarter. Meanwhile, the company should be in a good position moving forward as the Federal Reserve is at the start of a rate-cutting cycle and the economy is holding up well. This should be a strong combination for a company involved in both originating its own loans and generating leads for other lenders.

However, these are not cheap stocks and will be vulnerable to any weakening economy. As such, I would view the stock more as a hold at current levels.