SoFi Technologies (NASDAQ:SOFI) stock went on a tear in December, but now is a time to be cautious and let it slide for a while. SoFi Technologies is appealing to younger bankers and investors who would like to see the company disrupt the banking system as we know it. However, I am neutral on SOFI stock in light of a Wall Street expert’s perceptive commentary.
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SoFi Technologies provides a personal finance app and a range of banking services. As a lender and loan-refinancing specialist, SoFi Technologies is greatly impacted by changes in the Federal Reserve’s monetary policy.
This can be a good or bad thing, depending on how you choose to look at the situation. In late 2023, the market chose to see the glass as half-full for SoFi Technologies. Now, however, it’s wise to take note of SoFi Technologies’ potential problems in a lower-interest-rate environment. Consequently, SOFI stock may have some downside in store, and cautious investors can choose to target lower buy points.
Is $14 “Around the Corner” for SOFI Stock? Not Likely.
In case you didn’t get the memo, SoFi Technologies stock is down over 12% today, dropping below the $8.50 level. It’s a devastating blow to SOFI bulls, especially since a top analyst recently suggested that a $14 share price is around the corner.
It just goes to show that even the best experts can’t always be spot-on since the financial markets are so unpredictable in the short term. Truist’s Andrew Jeffrey is a five-star analyst rated in the top 1% of the Street’s stock pros, but his prediction for SOFI stock may have been ill-timed.
Jeffrey, who assigned a Buy rating and a $14 price target to SoFi Technologies stock in December, expects that SoFi’s “earnings quality” will improve as the company’s “mix shifts to non-Lending.” The Truist analyst reiterated this idea, stating, “We believe our estimates are conservative and expect greater long-term contribution from non-Lending.”
In other words, Jeffrey sees SoFi Technologies shifting away from the company’s lending services and views this as a good thing. That’s an interesting take, considering the market expects the Federal Reserve to lower interest rates multiple times this year, which should (at least in theory) spur borrowing and lending activity.
Nonetheless, Jeffrey is sticking to his guns, declaring, “We see this Lending downshift consistent with regulatory uncertainty during a period of higher-for-longer rates.” This may very well be a reasonable, bullish perspective on SoFi Technologies, but as we’ll discover in a moment, not every analyst seems to share Jeffrey’s viewpoint.
SoFi Technologies Gets Smacked with a Harsh Downgrade
In stark contrast to Jeffrey, Keefe, Bruyette & Woods’ Michael Perito downgraded SOFI stock from Hold to Sell and lowered his price target on the shares from $7.50 to $6.50. Perito is a top-rated analyst, just like Jeffrey is, so his commentary is definitely worth paying attention to.
Today’s investors certainly paid attention to Perito, as his downgrade and price-target cut are likely what prompted the SoFi Technologies stock sell-off. It seems that Perito is concerned about SoFi Technologies’ lofty valuation, and I understand this concern, especially after December’s share-price rally.
Perito and his colleagues at Keefe, Bruyette & Woods were polite in their warning about SoFi Technologies. They posited, “Anytime a growth stock is trading at premium valuations with 15-20% downside potential to consensus EBITDA, we believe a more cautious stance is appropriate.” To me, this is a fancy way of saying that SOFI stock’s price (prior to today’s downturn) wasn’t justified by SoFi Technologies’ financials.
Furthermore, Perito is evidently concerned that SoFi Technologies, which will continue to operate as a lender despite Jeffrey’s aforementioned commentary, will encounter problems due to the Federal Reserve’s anticipated interest rate cuts. Specifically, SoFi Technologies reportedly marked up the value of its loan portfolio based on higher interest rates, and the value of that loan portfolio is likely to decline when interest rates fall.
Is SOFI Stock a Buy, According to Analysts?
On TipRanks, SOFI comes in as a Hold based on four Buys, five Holds, and three Sell ratings assigned by analysts in the past three months. The average SoFi Technologies price target is $8.58, implying 1.6% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell SOFI stock, the most accurate analyst covering the stock (on a one-year timeframe) is Dan Dolev of Mizuho Securities, with an average return of 12.57% per rating and a 63% success rate. Click on the image below to learn more.
Conclusion: Should You Consider SOFI Stock?
Jeffrey’s bullish argument made sense at the time it was published. On the other hand, Perito’s bearish points should be duly noted. As a value-oriented, contrarian trader, I tend to agree with Perito’s suggestion that SoFi Technologies’ valuation may be difficult to justify now. I still like SoFi Technologies’ long-term prospects, but it wouldn’t surprise me at all if SOFI stock continues to pull back during the next few weeks. Therefore, I’m not considering an investment in SoFi Technologies at the moment.
