The emerging fintech, SoFi Technologies (NASDAQ:SOFI), reports quarterly results on Nov. 10, and investors will look for a few key data points that could validate buying SOFI stock after the rally.

SoFi investors will look at customer acquisition growth in the third quarter. They will also watch for the company to exceed its previously issued third-quarter guidance.

SoFi set an adjusted net revenue forecast in the range of $245 million to $255 million. The company said it would expect adjusted EBITDA will be negative $7 million in Q3, down from EBITDA of $11.2 million in the second quarter.

The company set lower expectations for student loan refinancing. It lowered refinancing revenue by $40 million, due to the extension on the CARES Act moratorium on student loan payments from Sept. 30, 2021, to Jan. 31, 2022.

SoFi needs membership growth to continue. In Q2, the member total grew by 113% year-over-year to 2.6 million. Total products rose by 123% to 3.7 million.

Lending rose by 66% year-over-year to $2.95 billion, thanks to personal loans almost doubling (up 188%) to $1.29 billion.

SoFi fully automated more than half of personal loans processed. This suggests that SoFi’s operating margins will expand as its lending business grows.

A Closer Look at SoFi Stock

Markets absorbed the news of SoFi’s upsized convertible debt bond offering, worth $1.1 billion, on Oct. 4.

Instead of treating the dilution as a headwind, investors decided the cash raise signals it will get a bank charter next. Institutional investors drove demand for the debt higher, signaling confidence in SoFi operating profitably as a bank.

It received preliminary approval from the U.S. Office of the Comptroller of the Currency for a banking license in Oct. 2020.

On Oct. 18, SoFi announced it would partner with Pagaya to expand access to financial services. SoFi customers will have broader access to financial products.

Pagaya has a proprietary artificial intelligence solution for fintech, banks and loan providers. Its clients may have more access to more financial products.

Pagaya uses machine learning models that cut the risks for lenders. SoFi benefits by making better-informed credit decisions.

Gal Krubiner, Co-Founder and CEO of Pagaya, said that the partnership will help SoFi extend more capital to more people “in a way to create less risk for our partner. This creates a symbiotic, win-win-win ecosystem across all parties.”

Fair Value

On Wall Street, analysts from Morgan Stanley and Jefferies recently set a $25 price target on SoFi stock. It trades today at a little less than $23 per share.

According to tipranks, the average price target is $24.58. Ahead of its earnings report, SoFi trended higher, finding support at the key 20-day and 50-day moving averages.

The rally is a mixed blessing. SoFi stock could disappoint investors by issuing a weak outlook. That would erase the stock’s pre-earnings gains. Conversely, SoFi could meet shareholder expectations. This would attract growth investors seeking exposure to the fast-growing fintech market.

In the chart above, SoFi’s moving average convergence divergence crossed over. That is usually a bearish signal.

Stockrover’s daily trading volume report also shows a decline as the stock rose. This could mean some profit-taking risks ahead.

Related Investments

Investors should assess rumors that PayPal (NASDAQ:PYPL) would buy Pinterest (NYSE:PINS).

PayPal is a dominant electronic payments firm. It is already richly valued, which suggests downside risks ahead if stocks in the tech sector face another market correction. When PayPal ruled out the Pinterest acquisition, the stock kept falling.

SoFi will eventually face a slowdown in user growth. That could happen any time. From a few quarters later or many years from now.

Investors could assign a lower valuation by selling SoFi stock. The supplier of one-stop-shop for digital financial services would feel the pressure to acquire companies to spur growth. That would hurt its balance sheet and scare investors wary of acquisition risks.

Fortunately, companies like Square (NYSE:SQ) continue to trade at high valuations. Markets would rather accumulate a growing stock like Square than buy traditional credit card firms.

Visa (NYSE:V) lost 8.4% of its value last week despite increasing its dividend. The company posted a strong fourth-quarter payments volume. It also benefited from stronger cross-border transaction volume and processed transactions (indexed to 2019).

Your Takeaway

SoFi is an emerging financial service firm in the growth phase. Investors may consider holding a small position relative to the established companies. SoFi has higher risks at this time.

It still has to prove itself as a growing company. Conversely, the bigger companies are trading at a discount after their shares fell on the market last week.

A portfolio holding Square, PayPal, Visa, and SoFi would benefit from the growth in transactions, whether it happens online or not.

On the date of publication, Chris Lau 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.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.