This Is the Fintech Stock I'd Buy Next, and Soon

The 40% pullback in SoFi Technologies (NASDAQ: SOFI) from last October's peak -- followed by its stagnation since March -- makes enough superficial sense. The company delivered the bad news it was expected to deliver.

But as is so often the case, the sellers arguably overshot their target by pricing in all of the bad news -- and then some -- while ignoring much of the bigger bullish picture. Here's why the stock is a buy this month.

SoFi Technologies is so much more than its one recent setback

SoFi Technologies is an online bank that offers checking, savings, credit cards, loans, and everything else you might expect from a traditional brick-and-mortar bank. But it doesn't manage any brick-and-mortar branches -- it's an entirely online, self-service bank that also provides its back-end technology platform to third parties.

Image source: Getty Images.

And that's the crux of the reason for the share pullback: Fellow online-only bank Chime Financial had been using SoFi's Galileo platform for a fee. Now it isn't, accounting for most of the 27% year-over-year tumble in platform revenue to $75 million in this year's first quarter. Investors flinched. And although the second quarter's figure rose sequentially, it fell year-over-year, leaving investors concerned.

They were so concerned that they seem to have looked right past all the other ways SoFi is knocking things out of the park. Its first-quarter total revenue is a case in point.

Although Galileo platform revenue dipped during the first quarter, total revenue soared 43% to $1.1 billion, more than doubling net income in the process. Its total customer count grew 35% to a record 14.7 million, and then it improved another 35% year over year to 15.8 million during the second quarter, when revenue increased 40% to $1.2 billion.

This growth appears to be accelerating, too. As part of its second-quarter report, released in late July, SoFi raised its full-year revenue forecast from $4.65 billion to a range of $4.75 billion to $4.85 billion, largely reflecting the fact that a growing number of its customers are now using more than one of the neobank's revenue-generating services. And at just over 30% above last year's top line, that revised outlook may still be on the conservative side.

Plenty of growth ahead

So why isn't the online bank's stock bouncing back from the knee-jerk worry about the impact of losing Chime as an institutional customer? Analysts account for some of the decline. They're only lukewarm on this stock right now, with most of them currently rating SoFi as a hold, with an average price target of $20.05, only about 10% more than the current price. With shares trading at price-to-earnings (P/E) ratio of 37, they may have valuation concerns.

Analysts may also be looking right past the much bigger picture, though, afraid of sticking their necks out by pricing in next year's projected top-line growth of 26%, which would pump up the company's bottom line to $0.82 per share.

And even then, it would still just be getting started. Longer-term projections from Morningstar analysts indicate SoFi could turn $6.66 billion worth of revenue into a per-share profit of $1.71 in 2030, driven by the ongoing adoption of app-based banking.

Data source: Morningstar. Chart by author.

According to a recent survey commissioned by the American Bankers Association, more than half of all bank customers within the U.S. already say a mobile app is their preferred way of banking, with another 22% indicating a computer or laptop is their favorite way. Nearer the bottom of the list, in-branch visits are the go-to option for a mere 9% of U.S. bank customers, while phone calls are only the first choice 4% of the time.

It should also come as no surprise that the younger the consumers, the more likely they are to choose digital banking. More than two-thirds of millennials (who are mostly digitally native) use a mobile app as their primary means of banking, while only 7% regularly visit a brick-and-mortar branch.

As the number of digitally native members of the population continues expanding, and online and mobile banking goes more mainstream, SoFi is perfectly positioned to meet more and bigger portions of consumers' financial needs.

Waiting for more certainty could mean missing out

The market will connect these dots sooner or later. In fact, although for the time being the stock seems stuck below $20 (leaving most of the pullback from last year's peak in place), since April we've seen an occasional glimmer of hope. The fact that the bulls continue testing the waters is telling.

So, don't be deterred by this setback, but rather, take advantage of it while you can. Just don't tarry. Once the ball finally gets rolling in earnest, it may be a while before it stops again.

That's particularly true if the analyst community gets on board and starts raising its price targets. The growth story is certainly compelling enough in the meantime to inspire them. They just need the right nudge.

James Brumley 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.