15 Small Cap Financial Stocks Hedge Funds Are Buying

7. SoFi Technologies, Inc. (NASDAQ:SOFI)

Market Capitalization: $12.123 Billion

Number of Hedge Fund Holders: 43

SoFi Technologies, Inc. (NASDAQ:SOFI) is a financial technology company that provides a digital financial platform to help individuals achieve financial independence through a single platform. Its main business segments include Lending, Financial Services, and Technology Platforms, through which it provides technology services.

On April 17, SoFi Technologies, Inc. (NASDAQ:SOFI) announced securing a $3.2 billion expansion to its Loan Platform Business through two major agreements with Fortress Investment Group and Edge Focus. The agreement includes a $2 billion extension agreement with Fortress and a new two-year agreement of $1.2 billion as a joint venture between Fortress and Edge Focus. Management anticipates that this expansion will allow them to meet the growing demand for personal loans while helping it to shift towards a less capital-intensive, fee-based revenue stream.

During the fiscal fourth quarter of 2024, SoFi Technologies, Inc. (NASDAQ:SOFI) delivered a record revenue of $734 million, reflecting 19% growth. This was driven by a 52% combined growth in the Financial Services and Technology Platform segments. Looking ahead, management plans to move towards an incremental EBITDA margin of around 30%. It is one of the small-cap financial stocks hedge funds are buying.

Patient Capital Management stated the following regarding SoFi Technologies, Inc. (NASDAQ:SOFI) in its Q4 2024 investor letter:

“The top performers in the fourth quarter were once again Financials and Travel names. We’ve been over-indexed to them since the pandemic, which has served us well. We strategically added to certain financial names like SoFi Technologies, Inc. (NASDAQ:SOFI) and Coinbase Global Inc. (COIN) during the year. Both companies rebounded strongly in the fourth quarter.

Sofi Technologies Inc. (SOFI) was a standout in the quarter, climbing 95% and up 156% from the intra-day lows in June. The company benefited from Fed rate cuts and the market’s growing optimism that the economy will avoid a recession. The company continues to grow its customer count while successfully cross selling into their loans and financial service products. In the quarter, we saw the company take on a new revenue stream by originating loans for third parties, creating an attractive balance sheet-light revenue source, helping improve return on equity and margins. Sofi is early in its life cycle, currently being a small player in a very large total addressable market (TAM). With their strong management team, we believe the company will continue to deliver on their guidance of strong growth and expanding margins.”