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SoFi: Will this Fintech Stock Recover from the Steep Decline?
Stock Analysis & Ideas

SoFi: Will this Fintech Stock Recover from the Steep Decline?

Story Highlights

SoFi stock has plunged significantly this year amid a broader market sell-off. Will the stock recover given persistent macro headwinds and the fear of a looming recession?

Shares of financial services company SoFi Technologies (NASDAQ: SOFI) have plunged by nearly 67% year-to-date amid the broader market sell-off. Moreover, SoFi stock has also been under pressure due to the extension of the student loan moratorium and investors’ concerns about the impact of a looming recession.

Financial Snapshot

SoFi reported better-than-expected first-quarter results, with its revenue rising 69% to $330 million. The company’s loss per share narrowed to $0.14 from $1.61 in the prior-year quarter. The first-quarter results were boosted by strong member growth and new product additions.

However, SoFi’s second-quarter guidance lagged analysts’ expectations. SoFi expects second-quarter adjusted revenue growth in the range of 39% to 43%, following a 49% growth in first-quarter adjusted revenue.

Multiple extensions of the moratorium on federal student loan payments have been a drag on SoFi’s performance. Back in April, President Joe Biden extended the student loan moratorium until August 31. Due to such extensions, SoFi’s student loan origination volumes are at less than half of the pre-pandemic levels.

Looking ahead, SoFi is optimistic about its long-term prospects given that it won a national bank charter earlier this year. The company believes that the recent opening of SoFi Bank provides it with additional flexibility and the ability to further lower its cost of capital. Due to its bank status, SoFi can use its own deposits to fund loans instead of relying on outside capital and can hold loans for a longer duration, thus earning a higher net interest income.

Wall Street’s Take

Recently, Piper Sandler analyst Kevin Barker lowered his price target for SoFi stock to $8 from $10 and reiterated a Buy rating. Barker slashed his estimates for consumer finance companies to reflect “economic reality.”

Barker believes that consumer lender stocks have declined over the past few months as the market has become increasingly worried about a potential recession in the next 12-18 months. Baker feels that it is in the best interest of shareholders and companies to start building or conserving reserves and/or capital so as to be in a better position in case of a potential economic downturn.

Overall, the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on seven Buys and five Holds. The average SoFi price target of $9.71 implies 84.25% upside potential from current levels.

Conclusion

SoFi raised its full-year guidance following the strong momentum in the first quarter. With the recently granted bank charter, SoFi’s long-term prospects look attractive. However, investors seem concerned about the impact of a looming recession on the company.

Meanwhile, insiders are seeing the pullback in SoFi stock as an attractive opportunity to build their positions in this fintech company. As per TipRanks Insider Trading Activity Tool, corporate insiders have bought shares worth $2.7 million in the last three months. SoFi scores a Positive Insider Confidence Signal based on 23 Informative insider transactions.

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