It had only been a bit more than a year since SoFi (NASDAQ:SOFI) stock had made its splash in the public markets. The successful special-purpose acquisition company had been a bellwether of a wave of FinTech disruptors making their debut.
I had been high on SOFI stock the past few months. I had believed that $15 was a decent entry point and at $12 the stock could be a steal.
I still think SOFI is worth a look. This is especially true now that the company had received approval to become a bank holding company.
SoFi Bank Charter Is a Game-Changer
To be honest, I was surprised at the speed at which the Federal Reserve approved this application. I had fully expected this process to drag on for months. This is usually the case when dealing with acquisitions like these. So this had been a pleasant surprise.
I believe this could be a massive game-changer for the industry. As it will effectively lower the cost of doing business for SoFi. Costs will go down as SoFi would no longer need to partner up with a third-party bank to offer certain products. This effectively “cuts out the middleman” thus leading to better margins and increased profits.
With a banking charter, SoFi is also able to offer a wider array of products to its large user base. SoFi has about 3 million members the majority of which are millennials and Gen-Z. These are pretty favorable demographics for the company.
According to SoFi CEO Anthony Noto: “With a national bank charter, not only will we be able to lend at even more competitive interest rates and provide our members with high-yielding interest in checking and savings, it will also enhance our financial products and services to ensure they efficiently meet the needs of our members, business partners, and communities across the country, while continuing to uphold a high bar of regulatory standards and compliance.”
Negative Sentiment Hounds SoFi Stock
SOFI stock popped nearly 15% on the announcement. However, it wasn’t able to break the $15 – $16 resistance range. It was a tall order to do so given that there is a large overhang of negative sentiment on SOFI stock.
This negative sentiment stems from two places. The first issue is the growing concerns regarding inflation. The second issue is that the macro-economic environment has been particularly punishing for fintech stocks.
For example, another fintech company, Lending Club (NYSE:LC), saw its stock drop a whopping 14% in a single day. The average analyst forecast for the quarter had been 22 cents per share. Lending Club delivered 27 cents per share. This was a massive earnings beat for the fledgling company. But it didn’t matter as the market crushed LC stock on what it perceived as weak guidance for 2022.
Overall, the market is anticipating a Fed rate hike as early as March. This affects the high-growth technology stocks the hardest. These stocks were trading at extremely high valuations and have very little earnings. Increasing the discount rate even slightly is bound to send price targets crashing.
Furthermore, it is still uncertain how higher interest rates will affect the revenue and margins of financial institutions. This creates a double whammy for fintech stocks which had been performing even worse than the overall tech index.
Should You Buy SOFI Stock?
Like most fintech companies, SOFI stock had been taking a beating in recent weeks. From a high of $24, the stock lost close to half of its value.
Now, at a price tag near its debut price, and with the approval of its bank charter, I believe SOFI stock is a cautious buy. The company reports earnings next week, so there could still be some short-term volatility ahead. However, I remain optimistic about SOFI’s long-term prospects.
On the date of publication, Joseph Nograles held a LONG position in SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.