Fintech
SOFI Stock Analysis: Wall Street Fintech Powerhouse Is Wrong
While the latest news from SoFi Technologies (NASDAQ:SOFI) has been largely positive, you wouldn’t think that if all you did was view a stock chart of SoFi Technologies. Despite better quarterly earnings, shares of the fintech company and neobank continue to slump. Clearly, market sentiment for SoFi remains bearish.
With 17.6% of its float sold short, Wall Street’s “smart money” suggests downside risk to the stock. With the stock more than reasonably priced and plenty of evidence to suggest the bull case will prevail, the best move with SoFi may be to go against the grain.
SoFi Technologies stock and the market’s bearish position
On April 29, SoFi released fiscal results for the quarter ending March 31, 2024, along with guidance updates. As mentioned above, SoFi performed well, with GAAP earnings per share of 2 cents, compared to forecasts for earnings per share of 1 cent per share. Net revenues of $580.65 million were also moderately above consensus.
Compared to the prior-year quarter, net sales increased 26%, adjusted EBITDA increased 91% and tangible book value increased 28%. Subscriptions and total products increased 44% and 38%, respectively, compared to the first quarter of 2023. In terms of outlook, SoFi slightly raised its full-year revenue and earnings forecasts.
So, with such solid results, why has the market maintained a bearish stance on SoFi Technologies stock? It depends on several factors.
First, revenue from lending declined during the quarter. Additionally, SoFi may have raised its full-year guidance, but it is updated for the current quarter it fell short of expectations.
Finally, long-standing concerns about credit quality and loan accounting practices continue to persist. However, while these factors contributed to a post-earnings slump for SoFi Technologies, there are substantial answers to both concerns.
Onward and upward in the years to come
Mizuho’s Dan Dolev has long been bullish on SoFi Technologies stock. Since the last earnings release, the analyst reiterated this view, as well as his price target of $12 per share.
In his latest research notes, Dolev underlined this recent sale of bad loansplus that of the company caution when it comes to short-term loan growthare encouraging signs about SoFi’s ability to weather a potential economic downturn.
With this, you might be thinking, “ok, the downside risk for SOFI may not be that massive, but what is the upside potential?”
Loan growth may not be too impressive right now, but the rest of SoFi’s businesses continue to thrive with above-average growth rates.
Upon profitability, incremental revenue growth is bound to have a huge impact on earnings. Sales-side forecasts call for EPS to nearly triple next year, to 23 cents.
Forecasts for the end of 2025 call for an EPS of 36 cents. By then, macroeconomic issues could normalize, paving the way for a pickup in loan growth. A series of positive developments like these could push SOFI higher and towards substantially higher prices.
Bottom line: Buy now as sentiment changes
At 88.3 times forward earnings, SoFi Technologies stock may look expensive, but with exponential earnings growth likely due to operating leverage, don’t assume this rich future multiple means SOFI is overvalued.
In a few years, SoFi’s earnings could rise to $1 per share. Not too shabby, compared to SOFI’s current stock price of $7.30 per share.
While there is a risk that the stock could get stuck at a lower multiple, as it is more of a bank than a pure fintech, reaching Dolev’s price target of $12 per share is within reach.
With all this in mind, ahead of the next sharp shift in sentiment towards upside for SoFi Technologies stock, consider it a buy at current prices.
As of the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to InvestorPlace.com Guidelines for publication.
InvestorPlace.com contributor Thomas Niel has been writing individual stock analysis for web-based publications since 2016.