SoFi Stock Offers a Lot of Waiting for Not Much Upside

  • It’s going to take time for SoFi (SOFI) stock to start bouncing back.
  • Even then, it may fail to bounce back to anywhere near its past all-time high.
  • For now, the best move remains to wait for it to fall to a more “can’t miss” price.
SoFi billboard seen at night.

Source: Tada Images / Shutterstock.com

After appearing to be on the verge of bottoming out in March, shares in SoFi Technologies (NASDAQ:SOFI) have taken another big dive so far in April. Yes, market-wide factors are to blame for much of the decline in SOFI stock this month.

But renewed uneasiness about inflation, interest rates and a potential recession isn’t the sole factor. Something more directly related to this fintech firm’s prospects has also played a role. I’m talking about the latest extension of the student loan moratorium.

So, with its move to the mid single-digits, is now the time to make your move? Not so fast. While I’ve previously said to wait for pessimism to return before buying, and pessimism about it has certainly moved back up, it doesn’t appear worth buying at present. Relative to both risk, as well as to the time it’ll likely take for it to finally bottom out, and begin to bounce back.

SOFI SoFi $6.15

Why SOFI Stock Could Stay Under Pressure

Despite hitting a new all-time low recently, the issues affecting the performance of SoFi Technologies could impact its ability to bounce back. First, let’s look at the more macro issue impacting its stock price.

Sure, take a look at recent headlines, and you’ll think U.S. recession fears are overblown. Yet as the Federal Reserve plays catchup, taking on a more explicitly hawkish tone when it comes to rate hikes, economists are becoming increasingly worried about a recession within the next twelve months. Chances are these worries continue to rise well before there’s a chance that they are proven to be an overreaction.

This, of course, will put more pressure on all stocks, including SOFI stock. If that’s not bad enough, the second issue putting pressure on it (student loan moratorium) is also one that could get worse before it gets better.

That is, there may be a strong chance that the recent extension (to Aug. 31) isn’t the last one. Why? In a move to boost Democratic party support ahead of the U.S. midterm elections, the Biden administration could again extend the moratorium, or cancel student debt entirely.

A Long Path to Recovery

A continued moratorium is still a big problem for SOFI stock, even as the company has diversified from its roots as a student loan lender. It’ll still negatively affect the fintech firm’s timeline to profitability. An economic slowdown could also extend this timeline. It may lessen its growth over the next year.

It may not be until the company really starts getting out of the red that it starts to recover. Based on sell-side earnings forecasts, that may not arrive until 2023 or 2024. Even then, assuming it becomes consistently profitable by that time, its level of earnings may not be enough to justify a substantial increase in its stock price.

For example, the high end of analyst forecasts call for it to earn 34 cents per share in 2024. Assuming by then it trades at a valuation on par with PayPal (NASDAQ:PYPL) (trailing twelve month earnings multiple of 25 times), that implies a move to $8.50 per share.

SOFI Stock Still Isn’t a Screaming Buy

Considering the uncertainty around its profitability timeline, buying now doesn’t look favorable. Especially if you take into account another risk that could limit upside.

I’m talking about a concern raised in my coverage of SoFi back in early March. As it becomes much more like a bank than PayPal, it may end up ultimately taking on a valuation more like that of a traditional bank than a fintech firm. In other words, a price-to-earnings (P/E) ratio of 10 to 15.

If the issues I listed above do cause it to experience another sharp decline in price, there may be merit in entering a position if there’s another severe pullback. Bottom-fishing in it at prices under $5 per share could be a contrarian play worth the risk and the wait. Until that moment arrives, however, stay on the sidelines with SOFI stock.

On the date of publication, Thomas Niel did not hold (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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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