While SoFi Technologies (SOFI) made an impressive stock market debut on June 1, its stock price appears to have outrun the company’s intrinsic value and may suffer a decline in the near term. So, we think it is better to bet on established credit services companies American Express (AXP), Capital One (COF), Discover (DFS), and Synchrony (SYF). These names are well-positioned to capitalize on increasing financial transactions amid the fast-paced economic recovery. Read on.Fintech company SoFi Technologies, Inc. (SOFI) made its stock market debut on June 1, 2021 by merging with Social Capital Hedosophia Corp V, a blank-check company. It made an impressive debut, with its stock rallying more than 12% on the day of listing. However, the stock has lost 20.1% over the past month to close yesterday’s trading session at $16.94. Analysts expect its EPS to remain negative in its fiscal years 2021 and 2022. Furthermore, the company’s trailing-12-month net income margin and ROTA are negative compared to the 28.18% and 1.15% respective industry averages. Given its weak financials and growth prospects, SOFI looks extremely overvalued at its current price level. Its 13.71x forward P/S is 331.1% higher than the 3.18x industry average. So, we think it’s wise to avoid the stock now.
However, the continuing economic recovery and rapid technological innovation are driving the growth of the credit services. According to Research and Markets, the global credit card market is expected to grow at a 3% CAGR to hit $103.06 billion in 2021. Investors’ interest in the credit services space is partly evidenced by the Financial Select Sector SPDR Fund’s (XLF) 17.7% gains over the past six months.
So, instead of betting on SOFI, we think it could be wise to bet on the shares of quality credit services companies American Express Company (NYSE:AXP), Capital One Financial Corporation (NYSE:COF), and Discover Financial Services (NYSE:DFS). These companies are well positioned to capitalize on the industry tailwinds.