After the Federal Reserve said that it would raise interest rates in 2022 at least three times, SoFi Technologies (NASDAQ:SOFI) ended its uptrend. Few investors will find a correlation between the market’s “risk-off,” or aversion to less established credit services firms, to SOFI stock. Since the market is a forward pricing machine, Sofi’s slump in the last month reflects minor headwinds ahead.
In the year ahead, markets expect tighter monetary policy will favor the established credit card companies. Financial institutions also thrive in higher interest rate environments. The more customer deposits banks have the more interest income banks earn.
In light of Sofi facing tougher conditions, what is this emerging fintech’s prospects in the year ahead?
Catalysts for SOFI Stock
Sofi’s bank charter approval is a positive catalyst for the firm. It would add meaningfully to the firm’s revenues. Sofi stock is disrupting the financial services industry. It offers customers a one-stop-shop for loans and other banking products. As the customer base grows, bank deposits will rise. A national bank charter would let the company accept deposits and provide loans using member deposits.
Sofi acquired Golden Pacific Bancorp on March 9, 2021. If approved for a bank charter, Sofi will contribute $750 million in capital. It will simultaneously build its national, digital business plan while maintaining Golden Pacific Bank’s community banking business.
GPB has three physical branches. After the acquisition, Chief Executive Officer Anthony Noto said GPB would raise Sofi’s ability to serve its customers. So far, it added more services and introduced many Sofi financial products.
The company uses Galileo’s technology platform to serve local communities. GPB’s customers in Virginia, Sacramento, and surrounding areas benefit from the improved service levels and convenience.
Trade or Invest Sofi?
Readers who do not have a position in this fintech may consider trading the stock. The stock previously found support at $14.00. At $20 or higher, sellers emerge. The stock pattern has no guarantee of continuing. Those who do not have the time to trade may consider an investment in Sofi instead.
The firm should get a bank charter soon.
The government will end the student loan moratorium, which will help Sofi’s revenues. Furthermore, firms of this size will take at least five years or more to grow. The stock’s volatility is shaking out the impatient investors.
Risks
Sofi is not a top app in the app store. It ranks at around 100. By comparison, Venmo, which PayPal (NYSE:PYPL) owns, shows up in the third spot. PayPal’s app is in the second spot while CashApp, which Block (NYSE:SQ) owns, is ranked first. Sofi’s low ranking will lower the chances of customers discovering its offering. The demand for payment apps suggests that people will have a low priority for a banking and loans offering.
Investors who bought Sofi shares at higher prices may hold off on averaging down. They may wait until the next quarterly earnings report to assess the firm’s cost structure. Stock market participants are less willing to pay a premium for companies having costs higher than revenue.
On Dec. 22, 2021, President Biden extended the student loan pause until May 1. Last summer, Sofi stock could not raise its guidance the first time the government extended the student loan moratorium. That cost Sofi around $40 million in student-loan financing.
Sofi is also a post-SPAC (special purpose acquisition companies). The Securities and Exchange Commission is ramping up a crackdown on SPACs. This could cast a shadow on Sofi’s stock.
Fair Value and Your Takeaway
Banks missed out on collecting fees due to Sofi’s previous SPAC structure. The firm bypassed the initial public offering. Still, eight bank analysts issued a one-year price target on Sofi shares. The average price target is $24.25, according to tipranks. The price target range of between $19.00 to $30.00 is reasonable for the long term.
In the near term, panic selling could send shares at fresh lows. In its next earnings report, Sofi may report strong customer growth and product sales. Thanks to Galileo Financial Technologies, the firm has a powerful financial service and payment platform. It may easily handle strong transaction volume growth.
Growth investors may look at Sofi as a cross between a growing technology software firm and a fintech firm. In recent weeks, Nasdaq’s decline hurt Square and PayPal stock. This pulled Sofi’s share price lower as markets reduced their exposure to online payment transaction firms. As the valuation correction moderates, Sofi is the first fintech investors should look at again.
Sofi continues to roll out new products. And as customer satisfaction rises, it will earn a strong reputation. This will encourage more customers to sign up for a Sofi account.
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.
