After weeks on a consistent downtrend, SoFi Technologies (NASDAQ:SOFI) has exhibited signs of bullish momentum. I’m not bearish on SOFI stock — in fact, I’ve written about its long-term prospects many times.
I see a company that has been accumulating wins. SoFi has been growing its revenues at a rapid rate and is starting to expand its product portfolio.
However, from a technical perspective, you shouldn’t try to catch a falling knife — but if you do try, you’d better be careful. Now that I’ve seen some momentum, I can’t help but ask myself if a reversal is coming for SOFI stock.
To understand that, I like to look for reasons the downtrend could continue. Let’s take a closer look at one factor analysts have pointed out.
Morgan Stanley Downgrades SOFI stock
Investment bank Morgan Stanley recently issued a downgrade on SOFI stock. It was a bit of a large downgrade as well. SOFI stock went from an “overweight” recommendation to “equal-weight.” Its price target fell from $18 to $10. The main reason the analysts cited was the extension of the federal student loan moratorium.
As a quick recap on the issue, President Joe Biden paused the payments of federal student loans during the pandemic. At the time, this was seen as a way to boost the economy and help those who may have lost employment. Many expected that once the worst of the pandemic was over, student loan payments would have to resume. But in January, the White House extended the moratorium all the way to May 2022.
The Biden administration is signaling it may yet again extend this moratorium. Nothing has yet been confirmed on this issue. But the Department of Education has instructed federal student loan servicers not to inform borrowers that payments will start again.
A major part of SoFi’s business has to do with refinancing existing student loans. With the moratorium in place, borrowers have no need to refinance their federal loans.
Student Loan Concerns Are Misplaced
The extension of the moratorium will have a negative effect on SoFi’s business. But it is in my opinion that Morgan Stanley’s concerns are exaggerated. According to management, the negative impact of the moratorium would only be $30 million to $35 million in revenue per quarter.
The revenue hit for SoFi is a fairly hefty chunk of the company’s fourth-quarter revenue of $280 million. But it is not a debilitating amount. At the higher end of the range, the impact is about 12.5% of revenue.
I am not too worried about this given Q4 2021 revenue grew by 54% year-over-year. If SoFi can continue its rate of growth, then it can mitigate the impacts of an extended moratorium.
Furthermore, the moratorium only defers the payments to be made on these student loans. So instead of refinancing this year, borrowers will start thinking about refinancing closer to the expected end of the moratorium date. In other words, the revenue SoFi can earn isn’t lost, but merely pushed back.
The Takeaway on SOFI Stock
Am I certain this is the bottom for SOFI stock? Of course not. However, I continue to like the company and its long-term prospects.
Sure, there are a few speed bumps on the road. However, I don’t think these are large enough though to derail the company’s momentum. At worst, it might stall it a bit.
On the date of publication, Joseph Nograles 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.
