• Despite being a promising market debut, SoFi Technologies continues to bleed red ink.
• The business narrative is dwindling and risky for student loans and mortgages.
• While some of my colleagues are bullish on the discount, caution remains key.

A strong swing higher on March 17 drew some interested glances toward SoFi Technologies (NASDAQ:SOFI). But overall, the financial technology (fintech) firm isn’t exactly having a bright moment in 2022. On a year-to-date basis, SOFI stock is down more than 40%. But could that be a catalyst for contrarian traders to buy in?

It’s not an unreasonable assumption. Consider the circumstances following the impact of the Covid-19 pandemic. Per the Wall Street Journal, seemingly everyone next to a computer began exercising their Gordon Gekko fantasies. And for those who might not be well-versed in holistic market dynamics, what could be more appealing than a fintech player like SOFI stock down by almost half?

Furthermore, it’s not just speculation that draws contrarian interest toward SoFi. Millennials are the most economically relevant demographic in the U.S., and they do things quite differently from their predecessors. Fintech is basically a second language to younger workers, which is why SOFI stock commands attention.

Still, I believe basic realities will ultimately determine SoFi’s trajectory — and they don’t look particularly encouraging.

SOFI Stock and the Student Debt Fiasco

On paper, SOFI stock offers a compelling narrative within the framework of student loans. Thanks to a concerted effort to focus on white-collar success (as opposed to the vast opportunities in the trade industries), plenty of people are signing up for higher education.

To me (and many others), it’s an unsustainable bubble. According to a report from The Press Enterprise:

“The Manhattan Institute reports that the average cost of tuition and fees at private four-year colleges was $36,880 for the 2019-20 academic year, up by $12,990 from 20 years earlier. For public four-year colleges, the annual cost of tuition and fees averaged $10,440 for 2019-20. Twenty years ago, it was just $5,270. That’s a 100% price increase.”

At a certain point, these prices will increase to a point where people can longer afford them. So while SOFI stock — and similar investments — may have benefitted from the anticipation of student loan growth, moving forward, this narrative might not be viable.

Therefore, I’m not too surprised to see SOFI stock succumb to red ink. With soaring inflation being an everyday reality now, circumstances will likely worsen before they get better.

The Business Environment Is No Better

Similarly, we can consider another market that appears unsustainable: residential real estate.

Sure, you’re going to come across arguments that this time, it’s different. Some say lending standards have drastically changed so that subprime borrowers won’t even have a chance to sniff the hallway of a loan officer’s working space before being run out of town. Others believe millennials have accumulated savings over the years and are now ready to buy a home.

While these factors may be true, it’s not necessarily the existence of high-risk borrowers that create bubbles. Per the definition provided by current economic theory, “a bubble exists when the market price of an asset exceeds its price determined by fundamental factors by a significant amount for a prolonged period.”

That’s it. So, whether this exceeding of fundamental factors occurs due to subprime borrowers or another source is irrelevant. It’s the distortion against realities that makes any market a bubble.

Therefore, if the housing sector eventually crashes back down to whatever is the fundamental norm, that could be a huge impact to SOFI stock. Typically, corrections are not orderly; they can occur violently, spreading fear and uncertainty across the entire financial system.

Should You Buy the SoFi Discount?

Though a declining price is always an enticing catalyst for speculation, investors should be leery about using any one factor as a deciding mechanism. Rather, they ought to consider the fundamentals, and it’s here where the storyline for SOFI stock demonstrates some vulnerabilities.

Ultimately, we need to consider why SOFI stock has hemorrhaged crimson ink. As a forward-looking indicator, the market absorbs possibilities of future events. With inflation killing purchasing power and the housing market skyrocketing to ridiculous prices, the underlying company risks damage to several key business opportunities.

As a result, I believe a cautious approach is the best when it comes to SOFI stock.

On the date of publication, Josh Enomoto 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.