Despite Correction Risks, SoFi Technologies Stock May be Worth It On a Dip

My past articles on SoFi Technologies (NASDAQ:SOFI) stock have largely taken a bearish view on the fintech company’s shares. Somewhat due to fact it still has a lot to prove. It still remains to be seen whether SOFI stock could be the next PayPal (NASDAQ:PYPL) or Square (NYSE:SQ).

SOFI stock
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Mostly though, due to market-wide concerns. If a much-feared stock market correction comes to fruition, these shares are at risk of taking a trip down to single-digit prices before they make their way back toward their high.

However, now I have reassessed my view. Even now, at about half of SOFI stock’s $28.26 peak, I still believe shares are a bit pricey. There’s still a risk of a market correction temporarily knocking it down as well. Near-term investors may want to be careful.

But what about investors with a long time horizon, and a willingness to ride out any volatility?

Cautiously diving in today at around $15 per share may be a worthwhile move. Any pullback between now and December 2021 could be an opportunity to add to one’s position. Once catalysts on the horizon play out starting in early 2022, the stock may have a path back to $20+ per share.

Why Long-Term Investors May Want To Buy SOFI Stock Today

Besides fears of a correction, what’s made me concerned about SoFi in the past? First, it’s pricey, selling for about 12.7 times its estimated sales for 2021, and around 8.4x estimated sales for 2022. Second, recent underwhelming results and guidance call into question pricing it at such a premium so soon.

That said, looking back it’s not hard to counter either of these points. The valuation of SOFI stock may seem high, but PayPal, a more established name growing at a slower rate, trades at an even higher price-to-sales multiple. This company may still have a lot to prove, but there are some catalysts ahead that could help reverse its decline.

One is the end of the pandemic student loan repayment moratorium in January 2022, as a Seeking Alpha commentator recently pointed out. As you likely know, SoFi got its start in the student lending space. It’s diversified heavily since then, but a “return to normal” for this legacy business line is definitely a positive.

Our Faizan Farooque pointed out another possible near-term catalyst recently: its acquisition of a banking charter. Its deal to buy Golden Pacific Bancorp (OTCMKTS:GPBI), which closes by year’s end, will fast track its obtaining one.

The takeaway? It may be foolish to worry too much about a correction sending it back to $10 per share, or even to lower prices. Volatility may be painful in the short-term. But worrying about a correction could be a waste of time, as one may not happen, and if it does happen, it could be more of an opportunity to double-down than anything else.

Correction Could Be More Opportunity Than Risk

If markets hold steady, and the above-mentioned near-term catalysts play out, SOFI stock may have a path back to $20 per share. The opportunity to get into this fintech giant-in-the-making at $10-$15 per share may never come back. Or will it? So far, neither the Delta variant of Covid-19 nor talk of Federal Reserve tapering has put the brakes on this runaway bull market.

But the risk of a correction, meltdown or sell-off still looms. Either of these factors could still cause some volatility between now and the end of 2021. So too, could other factors like inflation.

My view on this stock is softening up, yet one take stays the same. If markets get rocky, growth stocks like this one will likely get hit the hardest.

Nevertheless, this may not be a reason to avoid buying SoFi today. Assuming you are approaching something to buy-and-hold, not as a trade. Instead, it could be an opportunity to add to your position at a lower price.

Once the dust settles, and company-specific factors become its main driver again? The stock may have ample room to recover. Whether from the bank charter, student lending or any other catalysts that could come about over the next year.

Despite Risks, Consider It a Cautious Buy at Today’s Levels

Some of my past bearishness on SOFI stock may not have been warranted. A market correction could push it down, yet a correction happening is not set in stone. Near-term traders may want to tread carefully. But for investors with a longer time horizon? A sell-off could be an opportunity to average-down, not a reason to worry.

An eventual move to its past high, or even to higher levels, may take time. Once uncertainty hanging over the market clears up, the near-term catalysts could help send SOFI back toward $20 per share. Consider it a cautious buy at today’s prices (around $15 per share).

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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