The Smartest Growth Stock to Buy With $40 Right Now

Even small sums can go a long way in equity markets, provided they are invested regularly in stocks with outstanding long-term prospects. For example, with just $30, investors can purchase a whole share of SoFi Technologies (NASDAQ: SOFI), a fintech specialist. This company is one of the best growth stocks available at that price, given its strong business, excellent financial results, and attractive outlook. Here's more on SoFi.

Disrupting the banking industry

SoFi's shares traded for under $10 apiece as recently as late last year. The company has experienced significant growth since. To understand why, let's first highlight what the company does. SoFi was created to help young, relatively high-net-worth professionals refinance their student loans. It has since transformed into a full-fledged financial services company. Here's the kicker, though: SoFi is an entirely online bank. The company doesn't have a single retail location.

Image source: Getty Images.

Here's why that matters. First, this business model is perfectly adapted to modern demands. In today's world, whatever it is you need, there's an app for that. SoFi is an app for banking services. Second, the company avoids the overhead costs associated with physical retail locations. Third, although longtime leaders in the banking industry have adapted to this model, younger generations have a complex relationship with traditional banks and often opt for newer ones that don't carry the baggage of events like the Great Recession of 2008-2009. SoFi fits right into this mold.

And although the company struggled for a while, it has finally cracked the code. Over the past year, SoFi's financial results have improved significantly. Consider the company's most recent quarterly update. The company's revenue in the third period jumped 38% year over year to $961.6 million, driven by a 36% year-over-year increase in total products (such as checking or savings accounts and personal loans), which now stand at $18.6 million. The company also keeps adding more members to its ecosystem.

It ended the quarter with 12.6 million members, up 35% year over year. On top of all that, SoFi is profitable and posted a green bottom line for the 11th consecutive quarter. The company's adjusted earnings per share climbed 120% year over year to $0.11. With results like these, it's not surprising that SoFi's shares have soared over the past two years.

Why there is ample upside left

As the financial services industry continues to evolve, some corporations could position themselves among the new leaders in the field. SoFi has a great shot at being one of them. Besides its excellent financial results, the company's appeal, especially among the younger consumers it was initially created to serve, is an important reason. And the fact that the company's ecosystem is still expanding rapidly is also a great sign.

SoFi could make even more progress and significantly boost its financial results in several ways. First, the company could continue adding new products. It has been doing that for a long time and continues to do so. SoFi is gearing up to relaunch cryptocurrency trading on its platform. Although that market can be pretty volatile, crypto trading is especially popular among the same younger people SoFi targets.

This could be a significant source of revenue for the company. The bigger point is that as its ecosystem grows, SoFi will continuously seek to launch new services to monetize its vast user base, partly by leveraging the data it has access to through its app. In other words, the company is building a network effect. Another way it could boost its sales is by cross-selling additional products to its existing members. The company has an average of just 1.5 products per member.

Now, the company isn't without its risks, including its reliance on personal loans that could default, especially during economic recessions. Even so, SoFi has decreased its exposure to this segment through its less risky loan platform business, where it originates loans on behalf of third parties and earns fees for its troubles. Not only does this help diversify its revenue base, with fee-based revenue growing at a good clip, but it also decreases its exposure to credit risk.

Besides, the company has repeatedly said that its personal loan and student loan borrowers have excellent credit scores of 745 and 773, respectively, as of the third quarter. That's much higher than the average in the U.S. So, these are people who seem far less likely to default on their obligations. That doesn't completely eliminate the risk, but it does show that SoFi has taken steps to mitigate it. Overall, the company is firing on all cylinders, is building a competitive edge, and has excellent growth prospects. The stock is trading at about $29 per share. Buying shares right now could lead to monster returns over the long run.

Prosper Junior Bakiny 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.