After its pullback, does SoFi Technologies (NASDAQ:SOFI) stock have more room to fall before it finds its floor? Or, is now a great opportunity to buy its pullback?
In my view, it’s still the former. That is, my take on the fintech play remains the same as it was in August.
Yet the risk of it taking another plunge down to single-digit prices remains high.
The risk that the markets at large experience a correction between now and the end of the year still is significant. A sell-off could affect richly-priced growth stocks like this one more than stocks in general.
If markets remain steady from now through December another pullback could happen. That is especially true if results for this quarter (ending Sept. 30) disappoint like last quarter. Then again, better-than-expected results could get it out of its current slump.
Nevertheless, as the clouds of uncertainty continue to weigh over the market it may still be best to wait and see if the other shoe drops.
SOFI Stock in a Volatile Market
At the risk of sounding like a stock market Cassandra, I believe there’s more going on to make stocks rocky than there is to keep them steady as the rest of 2021 wraps up.
Sure, so far “taper talk,” and the possibility of interest rate increases, have been shrugged off by investors. The Covid-19 Delta variant outbreak hasn’t put much pressure on markets, either.
Even so, that’s not to say the market is out of the woods. Any or some of these issues, or perhaps other risks such as slowing economic growth, could negatively affect the markets.
If a downturn happens, it’s going to be growth stocks like SOFI that feel the brunt.
If it’s a correction caused by the Federal Reserve changing its tune with regard to monetary policy, SoFi shares could experience significant compression.
After all, lower interest rates have enabled this and other early-stage growth stocks to command rich valuations.
Trading for 11.5x estimated sales for 2021, shares could fall 50% and still be priced at a premium valuation to other online-based financial stocks like LendingClub (NYSE:LC), which currently trades for 3.7x its projected 2021 sales.
If other factors cause a correction, no matter the reason behind it, a downturn could still cause an outsized move for shares.
Still popular with retail investors, many of whom only got into investing during the runaway bull market, could sell en-masse at the first sign of trouble.
SoFi Could Rebound in a Steady Market
There may be many clouds hanging over the markets, but they could remain steady through the rest of 2021. Especially given the Fed is still more likely to take a slow-and-steady approach to tapering interest rate increases.
Inflation could very well end up being “transitory,” a product of the post-Covid recovery. A soft landing, not a hard landing, may be what lies next for stocks overall.
I continue to hold the view that SoFi’s mixed results last quarter (revenue beat, but wider losses), along with lower-than-expected guidance, point to continued disappointment for the September quarter. Plus, investors might just further sour on it.
That being said, a bounce-back may be in store, if the company can instead meet or beat expectations when it next releases quarterly results.
SoFi, possibly oversold with its move from around $17 per share to around $14 per share, could make up for its recent losses as investors dive back into it.
SOFI stock could even experience a bounce-back much sooner if investors agree with our Chris Markoch and see it at today’s prices as a “buy the dip” opportunity. It may be able to pull off this rebound in a matter of weeks.
The Verdict: Wait for Market Clouds to Pass
If there were clear skies ahead for stocks, buying SoFi Technologies after its post-earnings dip and ahead of a possible rebound would be a worthwhile move. However, as the clouds of uncertainty still loom, it may not be a risk worth taking.
Putting it simply, going long SOFI stock in the hopes it bounces back to $17 per share, may not be worth it if there’s a decent risk of market volatility sending it below $10 per share. Wait for uncertainty before buying.
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, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.