After languishing below $20 per share since late June, SoFi Technologies (NASDAQ:SOFI) is coming back, including today’s post-earnings pop that took shares to just below $23. With SOFI stock up more than 40% in just over a month, it appears my take from Oct. 6 (that shares were a buy as they traded sideways) was the right call.
Shares currently sit 23% below their all-time high of $28.26, made in early February. But after the recent run-up, I know some of you are wondering whether it is too late to enter a position.
The answer to that question depends on your investment time horizon. If you’re looking for a long-term play on the rise of fintech, SOFI stock may still be worth buying.
In the coming years, fintech companies should start to really disrupt the financial services space. SoFi, in particular, may become a name on par with digital-first financial leaders like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ). If so, SOFI stock could be worth far more than it is today.
However, if you are investing with a shorter time horizon in mind, the prospects are a bit murkier. Positive developments, like the company finally obtaining a bank charter, could give shares a boost. Yet, there’s something big looming over it, and stocks in general, that could knock shares lower once again.
A Closer Look at the Rebound in SOFI Stock
Several factors are behind the strong performance of SoFi shares in recent weeks. These include positive analyst coverage and anticipation of the fintech receiving its national bank charter.
Today, SOFI stock spiked 12.5% following the release of the company’s third-quarter earnings results. In addition to beating revenue and earnings estimates, the numbers showed the company is having success cross-selling financial products to its existing customer base.
But there is another less-obvious factor that has played a role in the run-up. That would be the shrugging off of worries related to monetary policy changes following the late-September stock market sell-off.
Despite the Federal Reserve’s plans to move ahead with tapering later this month and high inflation pointing to interest rate hikes sooner rather than later, investors haven’t let this uncertainty get in the way of buying stocks, especially growth stocks.
Growth Stocks Are Not Out of the Woods Yet
Investors’ willingness to put their fears about tapering and possible interest rate increases on the back burner has played a significant part in the rebound in growth plays like SOFI stock in recent weeks.
Yet, it may be too soon to say growth stocks are out of the woods. They could be particularly sensitive to any changes in the central bank’s easy-money policies. In particular, an increase in interest rates due to elevated rates of inflation that have so far shown little sign of being “transitory.”
With more than one Fed official taking a more hawkish view on interest rate increases, the chance of one in 2022 is on the rise. This would almost certainly be bad for SOFI and other growth stocks, having a negative impact on their rich valuations. Valued on future profits, a higher interest rate means a higher discount rate and, in turn, a lower present value.
The speed at which the Fed raises rates next year (if it raises rates at all) will determine whether this causes a correction or merely a soft landing for stocks. Nevertheless, while the market is shrugging it off, for now, a possible rate increase remains something that could knock SOFI stock back down.
The Verdict on SOFI Stock
Most discussions of SoFi Technologies and the recent run in its shares have focused on company-specific developments. But it’s important to keep in mind how much of its rebound has been due to waning worries about tapering and interest rate increases.
Tapering doesn’t appear to be something that puts stocks into meltdown mode. The potential for higher interest rates, however, still does. This may dampen the appeal of SOFI stock as a short-term trade. Instead of zooming to $30 per share, renewed interest rate worries could push it back down to $15 per share in the near term.
Long-term investors, however, may still find SOFI stock a buy, even after its latest run-up. That is, assuming they can stomach any volatility that may arise in the months ahead.
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.
