With a market cap approaching $300 billion and total assets on the balance sheet of $3.3 trillion, Bank of America is undoubtedly one of the largest financial institutions out there. It's also known to be one of Warren Buffett-led Berkshire Hathaway's top holdings.
That might prompt you to give this bank stock some added attention, or even to buy shares. But if you continue reading, you may forget soon about Bank of America and instead strongly consider buying the magnificent bank stock featured below.
Strong growth trends
Capitalism creates (and requires) constant innovation. Perhaps no business has innovated in the banking sector quite like SoFi Technologies (SOFI -0.43%) has. This company went from focusing solely on refinancing student debt to now becoming a full-on digital banking powerhouse. SoFi provides checking and savings accounts, a brokerage service, credit and debit cards, and various loan products.
The business has been growing rapidly over the years. It has 7.5 million customers, up from fewer than 1 million four years ago. This has resulted in revenue rising 375% between 2019 and 2023. SoFi is clearly doing a good job catering specifically to the needs of its user base, attracting a higher-income and digitally savvy clientele.
Even in a higher-rate environment, which should create headwinds for any bank, SoFi is reporting tremendous growth, which is very encouraging. Revenue increased 35% last year. Bank of America, on the other hand, saw its revenue decline 2% in the just-ended first quarter.
Investors can be optimistic about SoFi's growth continuing for a long time. Management expects revenue to increase by 20% to 25% annually over the next three years. Should the company successfully penetrate international markets even remotely as it has the U.S., the expansionary runway is even more massive.
Looking at profitability
Bank of America deserves credit because it has a much longer operating history than SoFi. This means it has built up a core competency when it comes to operating a massive financial institution in a profitable manner. Consistent earnings help drive dividends and share buybacks, which might be appealing to some investors, particularly those who seek to own proven businesses that return cash to shareholders.
Because SoFi has been prioritizing growth above all else, it hasn't been profitable throughout its history. Like any other tech or software enterprise, the name of the game has been to invest aggressively in building out products and attracting more users. But things are changing when it comes to the bottom line.
In the last three months of 2023, SoFi reported its first-ever quarterly profit as a public company, producing earnings per share (EPS) of $0.02 on GAAP income of $48 million. This was tiny compared to revenue of $2.1 billion. However, executives provided hints about what the future might hold.
SoFi bulls have a lot to be excited about. That's because management believes that in 2026, SoFi will register EPS of between $0.55 and $0.80. After that, EPS is forecast to rise 20% to 25% per year.
Of course, it's always smart to take these estimates with a grain of salt. It does still show you that SoFi is likely turning the financial corner as it starts to better leverage its operating costs.
SoFi stock has return potential
I can understand why investors who want exposure to the banking industry would have their eyes on Bank of America. It's a durable business that has stood the test of time. It also helps that Buffett is a top shareholder.
But if you're looking to achieve market-beating returns over the long haul, SoFi is the clear winner. A combination of strong revenue growth and accelerating earnings creates the perfect recipe for a winning investment. If you believe it to be a higher-risk stock, then perhaps it's a good idea to initiate a smaller position in your portfolio.
