For many companies, being a growth stock often means running big losses over time. Many early-stage growth companies have a great story behind them. But they have to prove themselves. Growing customers and revenues doesn’t matter if they keep losing money.
When a company flips from losing money to making money, it’s a huge sign that the business idea is playing out. It may be great news for early investors, but it’s usually just the start of a successful company’s further rally.
Fintech company SoFi (SOFI) just hit this milestone. High volumes for its lending segment helped propel the company to a profit. SoFi has grown revenues by over 26 percent in the past year.
Currently, the profit is small, and shares trade at nearly 189 times earnings. As those earnings continue to grow, the company will see its valuation premium decline, even as its share price continues higher.
Action to take: Even with shares soaring higher on the company’s first profitable quarter, SoFi still trades for less than $10 billion. That still makes it a relatively small company. Further growth lies ahead, and profitable quarters along the way can smooth the ride higher.
That makes shares a reasonable buy now, albeit still a speculative one.
For traders, the April $11 calls, last going for about $0.50, could see high double-digit returns or better in the coming months.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.