Editor’s Note: This article was updated on Dec. 15 to correct the market capitalization.
SoFi Technologies (NASDAQ:SOFI) has it all. It’s a meme stock, garnering interest from its original target demographic — Generation Xers and Millennials — and it’s a financial technology (fintech) stock. The latter sector is currently one of the hottest on Wall Street. SOFI stock is definitely looking appealing as we head into 2022.
SOFI stock has had plenty of fuel for its rise during the past couple of years. And the more money that went into the company, bigger its marketing budget and acquisition appetite became.
It was running a textbook startup company game plan. Establish a unique niche, and then grow everything. And the money that comes in needs to be spent gaining eyeballs and expanding territory.
SOFI Stock Meets Rising Rates
First it was about refinancing student loan debt. This was a big deal — and will likely be again in 2022, once government student loan payments begin again.
You want to know where all that money came from that got pumped into the economy during and after the pandemic? A lot of that cash came from millions of college grads (and their parents) that didn’t have student loan payments hitting their monthly budgets.
Also, many student loan rates are low. In a low interest rate market, that isn’t very attractive to banks since they make their money on the difference between what they can borrow at and what they can lend at. That’s why banks love credit cards.
They can borrow for super low rates and charge around 15% to 20% interest on card balances. On long-term loans the margin is slimmer, but still important to banks. SoFi was able to offer low-interest consolidated loans at very competitive pricing because it didn’t have all the regulatory issues a bank has to deal with.
And that’s why it got into home loans and personal loans as well. Then, it expanded into non-lending financial services like credit cards and investment services.
But now that rates are headed higher, its unique niche and the springboard to its other ventures is going to be under stress.
Still Has Youthful Exuberance
Rising rates means SOFI stock is going to have to compete in a different world soon. And its initial growth will slow as it runs into tighter competition in all its markets from slimmed down legacy banks and beefed up regional and community banks.
What’s more, SOFI stock may not be done correcting. Currently the stock is off 38% in the past month.
Now, I have serious doubts the Fed is going to rain (or snow) on Wall Street’s massive Christmas bonuses by saying something frightful at its next meeting in December. But you can already see the market is hunkering down, taking profits and waiting for its bonuses.
If anything, we’ll see the markets up through the end of the year. But January is going to be the real test.
Patience Is a Virtue
That’s why I think anyone interested in buying SOFI stock now, should wait until January. There’s a good chance that selloffs will be bigger and last longer then.
I don’t think they’ll last, but why pay a premium when you can get it on sale a few weeks later? There’s no hurry on this one.
Wall Street isn’t going upset its own applecart during its biggest bonus season. And the Fed spooked the markets in 2018 — it learned its lesson then.
SOFI stock still has a $12 billion market cap and is building a pretty well rounded neobank out of its assets. It may be a fintech that has what it takes to transition from startup to a real financial services company.
But 2022 will be a better indicator of that than the next few weeks.
On the date of publication, GS Early 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.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time.
