SoFi Technologies Stock Has Too Much Going for It to Let Cash Burn Scare You Away

One could say that I’m obsessed with SoFi Technologies (NASDAQ:SOFI) stock hitting $2o.

the Social Finance (SoFi stock) logo is displayed on a smartphone.
Source: rafapress / Shutterstock.com

However, after jumping more than 21% with most of September in the rearview mirror, SOFI stock can hit this bugaboo in October with a repeat performance.

As I write this, SOFI is trading a little above $17.60, on its way to my self-proclaimed target. Assuming its share price finishes the month around the same price, it needs about a 16% increase in October to hit $20. Very doable. 

As I said on Sep. 1, there are two catalysts to get it to $20 by the end of the year. 

The first will be its Q3 2021 results, due out on Nov. 11. Of the six analysts covering SOFI, the average rating is “Overweight,” with a median target price of $25. The average analyst estimate for sales in the third quarter is $256 million with a loss of 16 cents.  

SoFi’s revenues were 74.2% higher at $237.2 million in the second quarter, $18.6 million higher than the consensus estimate, good for a 9% revenue beat. As long as it increases sales by 60-70% in the third quarter, it ought to move higher even if it doesn’t beat the estimate.

Of course, that doesn’t happen until after October has come and gone. However, was an analyst to either up their earnings estimate or raise their target price or stock rating during the month, that would most certainly push SOFI higher before Halloween. 

As for the second catalyst, I mentioned in early September that an acquisition that complements some of its existing financial services businesses, such as SoFi Money and SoFi Invest, would help accelerate its growth plans in this area.

I doubt this second catalyst will materialize in October. But, if it does, watch out for SOFI rocketing higher.

It Still Loses Money

In mid-September, InvestorPlace’s David Moadel suggested that the company’s Q2 2021 results were a mixed bag. As such, the outlook was also mixed.

“Despite generating around $231 million of net revenues, the company ended up with a net earnings loss of roughly $165.3 million,” Moadel wrote on Sep. 13. “Within SoFi’s earnings press release, I didn’t find any references to cost containment or scaling back spending.”

As a result, Moadel feels discretion is the better part of valor. Until SoFi can demonstrate it has a plan that includes a pathway to profitability, a bet on SOFI stock at this point could be riskier than the average investor wants to or ought to take on.

As my colleague says, it’s losing a boatload of money. In 2021, it’s expected to lose $1.25 a share. In 2022, that’s expected to shrink by 78%, but it’s still a substantial loss for the year.

The Bottom Line on SOFI Stock

Jefferies analyst John Hecht initiated coverage of SOFI stock on Sep. 22 with a “Buy” rating and a target price of $25. 

The analyst expects sales to grow by 46% annually through 2025. Assuming it hits the estimate for 2021 sales of $972 million, it would lead to $4.4 billion in revenue by 2025.

“Beyond vertical integration, consolidation between SoFi and Galileo [acquired for $1.2 billion in 2020] drives efficiencies that result in significant cross-selling opportunities between both customer bases (both B2B & B2C customers),” Hecht said according to a Tipranks report. “These synergies will provide even more of a boost to SoFi’s ‘competitive advantages’ and at the same time drive ‘attractive unit economics.’”

While it might not be profitable at just under $1 billion in sales, I’m confident it will figure out how to make money on $4,4 billion. In the meantime, SOFI could be setting up for a third run to $25 in the past 12 months.

It’s time to get on the SOFI bandwagon regardless of whether its share price pushes to $20 or higher in October. 

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2021/09/sofi-stock-has-too-much-going-for-it-to-let-cash-burn-scare-you-away/.

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