Between insider selling, the recent rout in growth stocks and the sharp change in sentiment for fintech plays, there’s been plenty to knock SoFi Technologies (NASDAQ:SOFI) lower. In the past five weeks, SOFI stock has fallen more than 35%.
Worse yet, another drop may be in store. A rotation out of growth stocks, plus growing regulatory scrutiny for fintech, could apply more pressure on shares. However, while more weakness is bad news in the short term, it may be good news for investors looking to lock down a long-term position in this otherwise-promising company.
Sentiment in SOFI stock could shift back from bearish to bullish in the coming year. Several catalysts are on the horizon. SoFi could also continue to see strong member growth, as well as make progress in its efforts to become a leading digital-first financial supermarket.
Given this, shares could experience a big rebound once they bottom out. In other words, there’s no rush to run out and buy SOFI stock today. But keep it on your radar, as it may dip down to a “can’t miss” price.
SOFI Stock Can’t Catch a Break Right Now
Since completing its special purpose acquisition company (SPAC) merger in June, SOFI stock has been on a rollercoaster ride. Trading for between $20 and $25 per share right after its deSPACing, shares dipped below $15 during the summer, only to mount a stunning recovery. The rebound was due in part to strong quarterly results, as well as a shrugging off of inflation/interest rate worries, leading investors to re-embrace their past “growth at any price” mantra.
But as I mentioned, the past few weeks have not been kind to SOFI stock. First, insiders decided to cash in some of their chips last month, via a 50 million share secondary offering. This created concern as it raised an age-old question: “If the smart money is selling, do you want to be buying?”
By Thanksgiving, SOFI stock had sunk below $20. Then, there was the post-Thanksgiving volatility in the broader market caused by worries about the omicron coronavirus variant and the specter of more hawkish Federal Reserve monetary policy. Coupled with souring sentiment surrounding fintech stocks, SOFI stock has been in freefall, as my InvestorPlace colleague Will Ashworth recently put it. Now trading for around $14 per share, shares could remain in “freefall mode” for some time.
That’s because the market conditions that once bolstered SOFI stock have changed and are now working against it. However, it’s premature to say you should avoid shares at all costs. There may not be much reason to dive in at today’s prices, but a continued drop may open up a buying opportunity.
Could SOFI Stock Make a Comeback in 2022?
With shares trending lower as of this writing, I’m not confident in a rapid rebound. Ahead of higher interest rates next year, investors are pivoting away from growth stocks. Again, market trends are no longer on its side, and this could remain the case in the immediate term.
How far could shares drop from here? It’s all up to the market. On a price-to-sales (P/S) basis, SOFI stock doesn’t look too pricey at about 8 times next year’s sales. Using this metric, it’s pricier than Block (NYSE:SQ), which trades for 3.9 times 2022 sales, but on par with PayPal (NASDAQ:PYPL), which trades for 7 times next year’s sales. Even so, that doesn’t mean it’ll find a floor at today’s prices. Growth stocks across the board could see continued multiple compression, sending shares to much lower valuations.
If SOFI stock falls further than its larger rivals and makes its way below its SPAC offering price ($10 per share), consider it a prime time to buy. At single-digit price levels, rising interest rates and other uncertainties will likely be more accounted for in its valuation. After that, it may be ready to bounce back, especially since 2022 could bring several developments that spark renewed bullishness among SOFI investors.
The Bottom Line on SoFi Stock
There’s a lot around the corner that could help this former fintech favorite get back to past price levels. The end of the student loan moratorium next month may mean improved results ahead for SoFi’s legacy student lending unit. Next year, the company could also finally get its bank charter. This will enable it to become a stronger competitor against “old-school” financial institutions.
These catalysts are on top of Sofi’s solid chances of continuing to deliver strong quarterly results, not to mention high member growth. Last quarter, year-over-year member growth came in at 96%.
In the meantime, SOFI stock could continue to move lower. But if it drops below $10 per share, consider it a buy ahead of its eventual rebound.
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.
