Shares of fintech company SoFi Technologies (NASDAQ:SOFI) have plunged this year due to bearish sentiment for growth stocks amid macro uncertainty. Better-than-expected Q2 results and the announcement of the end of the student loan moratorium provided temporary relief to SoFi investors. While most analysts are bullish on SOFI stock, there is a certain degree of cautiousness due to fears of an impending recession.
SoFi’s Growth Prospects Look Promising
SoFi started as a financial services platform that provided student loan refinancing options. The company rapidly expanded its offerings to include home loans, personal loans, credit cards, and other financial solutions. Furthermore, SoFi gained a bank charter by acquiring Golden Pacific Bancorp this year.
The bank status will enable SoFi to earn a higher net interest income as the company can use its own deposits to fund loans instead of relying on third parties.
Student loans constitute a significant portion of SoFi’s portfolio, which is why the multiple extensions to student loan moratoriums due to the pandemic hit the company. Despite this, SoFi delivered stellar Q2 results, with revenue growing 57% to $362.5 million driven by strength in personal loan originations.
SoFi ended Q2 with over 4.3 million members, marking a 69% year-over-year increase. The company added 702,000 new products in Q2, ending the quarter with 6.6 million products. It raised full-year adjusted revenue and adjusted EBITDA guidance to reflect solid business momentum in the second half of 2022, especially in Q4.
Is SOFI Stock a Good Investment?
Following a recent meeting with SoFi’s CFO Chris Lapointe at Mizuho Securities’ Annual Software Summit, analyst Dan Dolev reiterated a Buy rating with a price target of $8. The analyst remains confident about the company’s “resilient business model & strong execution” based on several factors, including its high-FICO (high credit score) borrowers, hedging efforts to address rate hikes, and low loan losses and delinquency rates.
Dolev also highlighted the ability of Galileo’s (a payment processing platform that SoFi acquired in 2020) transaction-based pricing model to offer protection against a weaker economy and renewed opportunities in student loan refinancing.
Overall, the Street’s Moderate Buy consensus rating on SoFi Technologies stock is based on six Buys and three Holds. The average SOFI stock price target of $8.38 implies 68% upside potential. Shares have tanked 68.4% year-to-date.
Meanwhile, hedge funds are using the pullback in SOFI stock to build their positions and bought 15.3 million shares in the past quarter. Consequently, SoFi stock has a Very Positive Hedge Fund Confidence Signal on TipRanks.
Conclusion
SoFi’s bank charter, the upcoming end of the student loan moratorium, the company’s growing customer base, and innovative solutions make it an attractive long-term pick. However, conservative investors might look for more clarity in the upcoming quarterly results and be cautious due to macro uncertainty as well as the fact that the company is not yet profitable on a GAAP basis.
