Traditional banks should be worried. As a leader in neo-banking, SoFi Technologies (NASDAQ:SOFI) poses a serious threat to them. And if you’re on board with this emerging movement in finance, you might consider taking a bullish position in SOFI stock.
I’ll admit that I was recently cautious about SoFi. The company’s second-quarter results were mixed, with around $231 million of net revenues and a net loss of roughly $165.3 million.
And SoFi’s total membership increased 113% year-over-year; that’s not too shabby.
So there was good news and not-so-good news in the Q2 results. To help us make a firm investment decision, we can conduct some technical analysis, followed by a review of a few prominent Wall Street analysts’ recent ratings and price targets.
A Closer Look at SOFI Stock
After the company’s reverse merger with Social Capital Hedosophia V on May 28, SOFI stock started trading on the Nasdaq on June 1.
The stock price leaped by 12% on that first day of trading. With the momentum continuing for awhile, the share price peaked near $24 on June 8.
Unfortunately, the folks who chased SOFI stock above $20 were soon punished. By mid-July, the share price had fallen to $16.
The stock was still trading near $16 at the end of September. Now that the hype phase has passed, the question is whether to hold onto the shares for the long-term.
Here’s a point to consider. Over the 12 months that ended in June, SoFi had earnings per share of roughly$4.40.
But we should be aware of the challenges that the company faces when it comes to turning its robust revenues into profits.
With that cautionary note in mind, let’s see what a few financial experts have to say about SOFI stock.
Just Scratching the Surface
Despite the lackluster action of SoFi’s shares and the concerns about its earnings, Rosenblatt analyst Sean Horgan seems quite bullish on the company.
Notably, Horgan issued a “buy” rating on SOFI stock, along with a $30 price target.
What the Rosenblatt analyst envisions is SoFi radically changing its business model.
The company’s lending segment contributed 86% of its revenues in 2020. However, Horgan believes that this division should shrink to less than half the company’s business (43% of its revenues) by 2025.
In the same year, SoFi could expand its technology segment to 25% from 15% of its revenues now. Plus, the company could grow its financial services division from 2% of its sales in 2020 to 32% of its top line by 2025.
With those changes, many customers may begin to consider SoFi their “primary bank account.” For that to happen, the company has to get more customers to directly deposit their paychecks with SoFi.
“SOFI direct deposit is just scratching the surface… [but] if/when SOFI receives a bank license, there will be a step-function change in the differentiation it can add,” Horgan explains.
Easing Consumers Into the Ecosystem
Like Horgan, Jefferies analyst John Hecht sees SoFi as potentially being able to bring more clients into the neo-banking movement.
By providing consumers with free access to high-frequency products and lower costs, Hecht says that SoFi “eases consumers into the ecosystem.”
Furthermore, Hecht puts a positive spin on SoFi’s May 2020 acquisition of Utah-based payment processor Galileo.
“Consolidation between SoFi and Galileo drives efficiencies that result in significant cross-selling opportunities between both [B2B and B2C] customer bases,” Hecht posited.
Hecht issued a “buy” rating and a $25 price target on SOFI stock.
Similarly, Mizuho analyst Dan Dolev gave the stock a “buy” rating and a price target of $28.
Like the other Wall Street experts mentioned above, Dolev sees SoFi as a business in transition.
He thinks the company will evolve into “a full-fledged mobile-first, super-app neo-bank with in-house next-gen issuing capabilities.”
Thus, SoFi will expand its financial offerings in the areas of “mobile-first cash management, trading & brokerage, robo-advisory and crypto services.”
The Bottom Line
As SoFi evolves into an all-in-one financial services business, Wall Street experts are taking notice and adjusting their price targets on its stock accordingly.
Of course, you shouldn’t buy any stock just because some analysts are bullish on it.
Yet we can still listen to what they have to say. And when it comes to SoFi, their outlook seems positive as the company becomes the leader of neo-banking.
On the date of publication, David Moadel 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.
