The best bank stock to invest $200 in right now

Bank stocks, as a category, usually provide certain benefits to investors that are different from other kinds of stocks. They are usually cash-rich, established companies that provide protection in volatile markets and often pay dividends.

But if you’re looking for a good bank stock to invest in right now, I have a different kind of bank in mind. SoFi technologies (SOFI -4.61%) is a medium-sized bank that is exclusively digital and a tech-first company or classic fintech. It’s young, only recently profitable, doesn’t pay a dividend — and may be the best bank stock to buy right now if you have $200 to invest.

What’s so great about SoFi

SoFi has its roots as a loan cooperative started by college students, and student loans remain a core part of its business. However, it has expanded into all types of loans and financial services and is emerging as a powerful bank that provides services to students, young professionals and anyone looking for a user-friendly digital banking app.

There are many of these types of users logging in. SoFi is enjoying high growth throughout its system with robust membership sign-ups and product additions.

Image source: SoFi.

Sales growth accelerated in the third quarter to 30% year over year, with the non-lending segments increasingly contributing to this growth. This is important because the lending business is very sensitive to interest rates, and with volatility in interest rates, the lending business has been under pressure.

In the third quarter, the non-lending segments, which are financial services and the technology platform, accounted for 49% of total revenue, up from 39% last year. They increased 64% year over year.

Risks and opportunities

As it grows its platform today, SoFi has so much potential. As more members sign up and engage with more products, the business scales and reaches real profitability. It has reported positive net income for four quarters now and expects that to be a given at this point going forward. Net income was $61 million in the third quarter, up from a loss of $267 million last year.

However, the business is not without risk. Much of that risk right now comes from its sensitivity to lending, which still accounts for most of its revenue, although the other segments are quickly catching up. But it is still responsible for the bulk of profits and is growing more slowly.

Lending contribution profit increased 17% in the third quarter from last year to $239 million. Financial services contribution profit increased 42% to $100 million and technology platform contribution profit increased 32% to $33 million.

It is only a matter of time before the other segments carry more of the weight. Meanwhile, as interest rates fall and SoFi reaps the benefits, the risks look less extreme.

In the short term, there is risk because SoFi is young and just out of the getting its feet wet stage. But its track record so far has been positive, and in 10 years it should be a much bigger bank with the stability that comes with bigger size.

SoFi stock could soar

SoFi stock may look expensive at first glance, trading at a price-to-earnings (P/E) ratio of 160 and a price-to-book ratio of 2.8. But since it is a high growth stock and a technology stock, it stands to reason that it is more expensive than a slow growing bank stock. In any case, according to some valuation metrics, it’s actually in line with some of the bigger banks.

SoFi stock doesn’t offer the same protection and reliability as most established bank stocks, but it does offer high growth. In 10 years, your $200 could be worth much more than it is today, since the stock could appreciate much more than any other bank stock.