Good news for financial technology (fintech) firm SoFi (SOFI) emerged today, as the company’s earnings report reflected a solid quarter. The news was excellent, and investors responded accordingly, initially causing SOFI stock to gap up 15% yesterday before finishing the day up only 3%.
However, not everyone’s convinced that SoFi can hold out going into the next quarter. I remain neutral on SoFi. It’s got a lot going on right now, but it will take some time to see if any of it actually works.
The last year for SoFi’s stock has seen some sharp jumps and equally sharp declines. The last several months have mostly seen declines. SoFi led off March 2021 with a slight jump, followed by a drop that wiped out most of its gains in the space of about two weeks.
Volatility plagued the stock throughout most of April into May. By June 7, the company looked to nearly double what its share price was on just May 12. However, by mid-July, the company had pulled back to around $15 per share. In mid-August, the company started a rally.
On November 11, SOFI stock was ready to challenge the highs it saw in June. However, it failed; and those gains and then some were lost. The company began a multi-month plunge that saw it go down past $9 per share. It is now sitting just under $11 a share.
SoFi’s latest news gave investors every reason to cheer, not to mention buy in. SoFi’s earnings report featured wins for both earnings and revenue. However, the earnings win came in the form of a lower loss than expected. SoFi posted a loss of $0.15 per share, but Refinitiv analysts were expecting $0.17. Revenue was a pure win, though, as SoFi posted $279.9 million in revenue against $279.3 million expected.
Wall Street’s Take
Turning to Wall Street, SoFi has a Moderate Buy consensus rating. That’s based on seven Buys and four Holds assigned in the past three months. The average SoFi price target of $18.28 implies 68% upside potential.
Analyst price targets range from a low of $14 per share to a high of $22 per share.
A Potential Comeback Winner in the Making? Maybe
Yes, SoFi shares have been extremely volatile over the last few months. A quick look at some of the activity in buying underscores that point. Insiders have been buying shares at a pretty heavy clip over the last three months, but hedge funds have been pulling back.
Worse yet is the analyst picture; Bank of America downgraded SoFi, noting that the good news presented in the earnings report has already been priced into the stock. Mizuho analysts, meanwhile, noted that the company’s gains in metrics are on the rise sequentially. Indeed, those metrics are gaining. The company added 523,000 new members and 906,000 new products.
It’s hard to agree with Bank of America’s assessment that the good news has been priced in when SoFi shares have been on the decline for the last three months, however. Additionally, there’s the matter of SoFi’s dividend history, rather, its utter lack of one. This makes it a complete bust for income investors. Growth investors, however, may be able to find something to get excited about here.
Given that the company is currently trading well under its lowest price targets, there could be an opportunity here. It’s also trading much closer to its lows for the year than its highs. Those who bought in back around the low would already have realized around 20%+ in gains overall.
These points suggest a potential upside gain in the making, though only a potential gain. It’s entirely possible that SoFi could revert back to its single-digit levels. It’s already been there, so going back is easier than some may think. However, given SoFi’s recent exhibition of positive fundamentals, recovery toward its $20 levels may be a much greater possibility.
Potential trouble could be in the making from Goldman Sachs (GS), which has been drawing plenty of attention with its own consumer banking initiatives.
Banking is going increasingly online. Additionally, banks are eager to maintain their reputations for safety and security even as they offer new features. Can SoFi fend off a major name like Goldman Sachs in helping to provide those new features?
Concluding Views
For every positive point about SoFi, there’s a negative lurking. For every Mizuho that points out fundamental gains, there’s a Bank of America downgrade calling the results baked in. Insiders buy while hedge funds bolt. Given that a hundred shares of SoFi could be had right now for the cost of a fairly nice television, it might be worth taking advantage of potential gains.
The good news about SoFi is that there’s a lot more potential for gain than there is for loss. However, the potential for loss still exists, even if it’s a much narrower possibility. With fintech still a growing industry, SoFi has room to grow here. I remain neutral on SoFi because there’s only slightly more potential for big gains than there is for big losses.
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