News that the student loan repayment moratorium was extended yet again came as welcome relief to most debtors out there. For the creditors, however, it was a much more bitter pill to swallow, and SoFi Technologies (SOFI) dropped 5.1% in premarket trading on Thursday as a result.
Those losses extended into the day’s trading session. SOFI stock is currently down nearly 10%. With this latest reversal in mind, I’m neutral on SoFi Technologies, as some distressing new possibilities have emerged with this latest development.
SoFi’s last year features two major peaks in value followed by a long slide down. A sharp reversal, sometimes only days apart, has met every attempt that SoFi has made to breach the $20 per share level.
The latest such reversal saw SoFi clear $20 per share in late October to mid-November, followed by a drop that cost the company almost two-thirds of its value over the next several months.
The latest news will likely not help SoFi make another push on $20. The company modified its projections on full-year adjusted net revenue downward. The original projections called for $1.57 billion. The new projections call for $1.47 billion. Meanwhile, adjusted EBITDA was projected at $180 million. Now it stands at $100 million.
The modifications came as word emerged from the White House that the student loan repayment moratorium would continue through August, with interest rates “expected to remain” at 0%.
Wall Street’s Take
Turning to Wall Street, SoFi has a Moderate Buy consensus rating. That’s based on one Buy, three Holds, and four Sells assigned in the past three months. The average SoFi price forecast of $15.38 implies 93.1% upside potential.
Analyst price targets range from a low of $10 per share to a high of $22 per share.
Hedge Fund Ties a Has-Been, Dividends a Never-Were, but One Bright Spot
The news is mostly bad for SoFi, but there’s one surprising bright spot that offers a note of hope for current investors.
Hedge fund involvement with SoFi Technologies, according to the TipRanks 13-F Tracker, has been in a state of ongoing decline since July of 2021. The decline between July and September 2021 represented about three million shares down.
The decline between September 2021 and January 2022, meanwhile, was down around eight million shares. That’s nearly three times the drop seen previously.
Worse, SoFi Technologies’ dividend history is nonexistent. SoFi has yet to issue a dividend to shareholders and has no plans at present to do so.
As for that bright spot, it comes from insider purchase and selling trends. Insiders with the company have bought an additional $1.8 million in shares over the last three months. That doesn’t hope to replace the roughly $64 million at today’s prices lost from the hedge fund dip.
However, it does suggest that the insiders are looking for a turnaround or, if nothing else, want to suggest to investors that a turnaround is afoot.
Is a Turnaround Really Afoot?
The gains from insiders are a comforting influence, certainly, with good reason; why would insiders deliberately buy a stock they knew was about to tank?
Some might get disquieting feelings of malfeasance involved here. However, considering other perspectives should quiet those concerns. MoffettNathanson’s Eugene Simuni recently noted that SoFi was a “diversified provider of digital financial services with three distinct pillars.”
The lion’s share of revenue, 75%, came from lending operations. The company’s financial technology—fintech—infrastructure operations brought in another 20%. Meanwhile, the remaining roughly 5% came from the digital banking business.
Certainly, it’s a problem that the biggest share of SoFi’s revenue is coming from that lending business. That business just took a monster hit from the White House’s latest moratorium extension. Worse, there’s no clear sign of how much longer the White House will interfere with 75% of SoFi’s business.
Mid-term elections are coming around in the United States. The current ruling party is on thin ice with voters. Recent polls found that 71% of voters believe the U.S. is headed in the wrong direction. That may mean more such relief efforts are forthcoming. Such a move would help get voters to reconsider the upcoming Democrat bloodbath at the polls. Thus, 75% of SoFi revenue would continue to suffer for an indeterminate period of time.
Concluding Views
There is positive news about SoFi. It’s trading well below even its lowest price targets, which suggests a worthwhile buy-in point. Its insiders are picking up shares for likely a brighter future to come.
If SoFi can start collecting on loans again, that will be a huge help. Plus, since student loan debt can’t be discharged in bankruptcy, SoFi will get help there as well. Backup revenue streams will also help SoFi stay afloat.
However, there’s a lot troubling SoFi too. The longer these moratoriums last, the more likely they may be to go permanent. With politics getting in the way, that only serves to increase the chance of the moratoriums lasting longer.
Still, with plenty of upside potential that has a reasonably good chance of becoming a reality, SoFi might be worth some investment. With 100 shares available for the price of a decent television, its chances of return could be reasonable.
This is why I remain neutral on SoFi. Proceed cautiously when dealing with SoFi for now, at least until September, when one of its three pillars might get back up and running.
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