Investors bullish on fintech disruption of traditional banking may want to take advantage of the latest round of weakness with SOFI stock
Source: rafapress / Shutterstock.com
Like other high-profile growth stocks, last month’s Santa Claus rally morphed into a New Year’s sell-off for SoFi Technologies (NASDAQ:SOFI). The market’s general direction is not the only factor contributing to the weakness of SOFI stock. The fintech firm/neobank has been affected by an analyst downgrade. Despite recent focus on the bear case for SoFi, don’t assume bleak returns for 2024.
In the near-term, there is an upcoming event that may help to shift sentiment back to bullish about the stock. In the quarters ahead, and over a multi-year time frame, there’s still strong potential for shares to re-hit their high-water mark (over three times current prices). Let’s dive in, and see why it’s not quite time to ditch SoFi.
SOFI Stock and Its Recent Downgrade
As InvestorPlace’s Thomas Niel recently discussed, SoFi’s December rally was fueled primarily by growing optimism about 2024 interest rate cuts by the Federal Reserve. Company-related news did not play much of a role.
Yet while fading excitement about these rate cuts has been a factor, a sell-side downgrade from KBW’s Mike Perito (issued on Jan. 3) has played as much of, if not a bigger, role in the latest SOFI stock sell-off. On that day, shares dropped by 13.9% on the heels of Perito’s downgrade from “market perform” to “underperform,” and trimming his price target from $7.50 to $6.50 per share.
In the research note, the analyst’s reasons for the downgrade are twofold. First, Perito believes SoFi’s run-up since its last earnings report on Oct. 30 was overdone. Second, he believes that interest rate cuts may be as much of a headwind for the neobank as they are a tailwind. This is because of the way SoFi packages/sells loans.
Based on recent price action, the market is taking Perito’s bear case to heart. Still, those with a more optimistic view of SoFi’s future prospects could soon be vindicated.
The Bull Case Could Prevail
The next big event for SOFI stock is just a few weeks away. That would be the release of the company’s Q4/full year 2023 results, post-market on Jan. 29. Perito’s bearishness notwithstanding, based on upward revisions to earnings, the sell-side’s expectations have been rising ahead of the release.
While rising excitement can of course be the prelude to disappointment, much suggests that SoFi will crush it again with results this quarter, as it did last quarter. With the student loan moratorium lifted and SoFi’s non-student lending operations growing, the company is likely to report its first profitable quarter.
If SoFI unveils that it has hit this milestone on Jan. 29, SOFI could experience its latest post-earnings rally. As you may recall, SOFI surged by double-digits in the days following the Oct 30 earnings release. Prior post-earnings rallies, such as after last year’s release of Q4 results, have been even stronger.
Don’t get me wrong, though. It’s not like the play here is solely as a pre-earnings/post-earnings trade. Shares could accrue even more substantial gains in the quarters/years ahead.
Bottom Line: If Bullish, Feel Free to Buy on This Weakness
SoFi may very well report positive GAAP earnings for the first quarter of Q4 2023. Throughout 2024, organic growth (through increased membership, and the cross selling of financial services) could also help counter the “rate cut headwind” cited by Perito and the bears.
And when I say growth, I mean continued above-average revenue growth, but more importantly, outsized levels of earnings growth (because of the fixed-cost nature of SoFi’s business). Per longer-term earnings forecasts, SoFi could report earnings of 23 cents per share in 2025, and 38 cents per share by 2026.
Further indication that this fintech will meet (or better, beat) these forecasts could help shares climb back to levels last hit during 2021 ($15, $20, even over $25 per share).
Hence, if you remain bullish on this up-and-coming fintech, feel free to buy SOFI stock after its recent weakness.
SOFI stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.