Down 34% This Year, SoFi Is a Hot Stock Right Now. Should You Invest in It?

If you pay attention to hot stocks that are in the news frequently, you've probably run across not only Nvidia and Tesla but also SoFi (NASDAQ: SOFI) . You may be wondering whether you should buy some shares -- and you might also be wondering just what the company does in the first place. (You might know of the SoFi Stadium where the Los Angeles Chargers and the Los Angeles Rams play, but that doesn't tell you much about the company.)

Here's a brief introduction to " fintech " company SoFi, along with some reasons why you might want or not want to invest in it.

Meet SoFi, a financial-services company

SoFi bills itself as a "a member-centric, one-stop shop for digital financial services on a mission to help people achieve financial independence to realize their ambitions." It recently reported having more than 8.1 million of those members, and its services include (but are not limited to) checking and savings accounts ; personal, student, and mortgage loans; credit cards ; investment accounts ; and auto, life, home, and renters insurance . It also offers a range of personal-finance tools, such as for credit monitoring and budgeting.

Founded in 2011 and based in San Francisco, SoFi is a bank holding company regulated by the Federal Reserve. Its SoFi Bank is a nationally chartered bank, regulated by the Office of the Comptroller Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). Notably, SoFi bank is also an online-only bank, so it's suitable only for those who are OK with that -- presumably, a portion of the public that will continue to grow.

SoFi's recent market value (or market capitalization) approached $7 billion. It has been considerably higher, though, as the stock is down 34% year to date as of this writing and down 74% from its all-time high.

What's going on? Well, multiple things. As SoFi has aggressively sought new customers, in part, by offering outsized interest rates (4.6%, recently), it has burned through significant amounts of cash . That has left it less profitable than investors would like it to be. In fact, it has been posting lots of net losses.

Why might you invest in SoFi?

Despite those losses, it's easily argued that SoFi is spending aggressively in order to build a big base of customers so that at some point in the future, it can rein in spending and start being more profitable. In its first quarter, it added more than 600,000 new members, up 44% year over year. Adjusted net revenue of $581 million was up 26%, and for 2024, the company is projecting "Financial Services net revenue growth of more than 75% versus 2023 levels."

It has successfully transformed itself from primarily dealing in student loans to being a rather diversified financial-services company, albeit generating most of its income from lending money.

Bulls see much growth potential in SoFi. For example, it might expand its credit card business , which could be a big moneymaker. It also has a promising technology platform that might become more widely used in the fintech world. One particularly interesting SoFi bull is its CEO Anthony Noto, who has been buying shares . That's always a good sign.

The stock's valuation is another draw, with its price-to-sales (P/S) ratio recently at 2.8, much lower than it has been in some recent years.

Why might you want to skip investing in SoFi?

Of course, this is not a no-brainer investment idea. You do need to use your brain to see if you think the growth potential outweighs the risks -- and if the current valuation is appealing or not.

It's always good if a company has a protective moat around it, with sustainable competitive advantages. SoFi doesn't have a great moat -- yet. Other companies might enter the fray, offering attractive financial services, and existing peers might take market share, too. SoFi is building a financial ecosystem , though, and it might end up with lots of loyal customers using it for a wide array of functions.

Is the stock a buy, then? The answer depends on your preferences, risk tolerance, and your expected holding period, among other things. If you're looking for a quick gain, it's far from guaranteed here. If you're risk-averse and volatility stresses you out, SoFi is probably not for you.

But if you like its growth potential, you can handle volatility, you aim to hold for many years, and you're going to keep up with the company's progress over time, give it some consideration. If you're on the fence, you might add it to your watchlist -- or build a modest position in it over time. Or just pass because there are always other promising investments .

Selena Maranjian has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy .