Fintech – financial technology – stocks have been a very hot sector for a few years now. But 2021 saw both the highs and lows of that trend. And SoFi Technologies (NASDAQ:SOFI) stock is a prime example of both.
SoFi’s 52-week high topped out just above $28. Today, it sits in the $13 range. And that high was hit last January. Since then, the stock has seen lower highs and lower lows. That’s not a good technical trend.
In the past three months, it has dropped 32%.
To be fair, SOFI stock went public via SPAC on June 1, so it hasn’t even traded for a year yet. Pricing on the stock hasn’t really settled into any trading pattern.
But again, the technical trend and the big sell-off in November aren’t inspiring too much bullishness on my part.
SOFI Stock Isn’t Doomed, But It’s in Transition
SoFi Technologies started strongly, moving into an underserved market where it could build a unique position and grow a competitive moat around it. Refinancing student loans and consolidating them wasn’t anything traditional banks wanted to touch since they were the beneficiaries of much of that long-term debt.
And much of the risk was underwritten by the government. Plus, student debt is very difficult to default on, so banks can make loans at better margins than they can if they’re financing other things like houses and cars.
But that was more than a decade ago.
Basically, it’s been doing what all hot, young companies are encouraged to do by their investors – grow.
But when do you lose the value of your niche trying to be like all the other competitors out there? Remember, every new market it enters isn’t in its core competency and it has niche as well as big bank competitors.
Getting Traction and Keeping It
Adding all these new features and divisions is challenging. You’re ramping up staff, onboarding them and integrating all these new features into your constantly transitioning organization.
I’m sure there were long discussions on whether SoFi should have stuck to its niche, courted a buyout from a deep-pocketed company that want exposure to the student loan sector and walk away with billions.
But it’s a moot point now. SoFi is deep into creating a challenger bank.
Pragmatism or Faith?
All that said, also bear in mind that SOFI stock is also seeing a rise in short interest.
That means if investors rally the stock and create a short squeeze (or short squeezes as we’ve seen in many meme stocks) the price could take off from here. But that’s only a temporary solution.
On the other hand, if the shorts are right, any sell-off could drive the price down even more rapidly.
SoFi’s massive marketing and ad spending is another issue that may work in its ultimate benefit, or its reckoning. It keeps it in the press, but it does nothing to add value to its product.
The company posted solid member and revenue growth in the third quarter. But then less than a week later many of its biggest backers announced they were offering a secondary share offering of 50 million shares. That dilutes SOFI stock and is a sign the big money is cashing out.
It’s a lot of mixed signals. SOFI stock is a very speculative buy here. But if you’re patient, and are looking to invest, wait until the first quarter is done before stepping in.
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 during that time. He’s seen a few things and hears more.