- SoFi Technologies (SOFI) could still more than double to $14.41 inside the next 12 months.
- SOFI stock’s bears are thriving on fear more than real downside risk.
- Shares of SoFi Tech continue offer growth at a compelling discount for long-term buyers.
April was one of those, “if you liked it then, you have to love it now” periods in the stock market. And as that wisdom relates to SoFi Technologies (NASDAQ:SOFI), even if you didn’t care in the past, SOFI stock should now have the attention of a much larger audience of buyers.
From rampant inflation data, challenging global supply chains, increasingly hawkish rate talk against the backdrop of a persistent Covid-19 virus and ongoing war in Ukraine, it was enough to extract a punishing toll on financial markets this past month. The Nasdaq led the broader averages with its 13% decline year-to-date (YTD), with more significant losses in heavyweight constituents like Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Amazon (NASDAQ:AMZN).
However, SOFI stock lost a stunning 59% YTD — nearly triple the tech-heavy index — while finishing just pennies from its all-time-lows. Bullishly, though, and as we’ll explore below, the current level of bearishness also puts SoFi Technologies on the short list of up-and-coming growth stocks worth buying right now.
| SOFI | SoFi Technologies | $6.37 |
SoFi Technologies Bullishly-Skewed Prospects
Clearly, SoFi Technologies wasn’t alone in its misery in April or for that matter, over the past six months as SOFI stock tumbled a stunning 73%. The hardest-hit risk assets have been smaller growth stocks whose future earnings and businesses are viewed as having larger price risk in unfavorable economic cycles.
It’s also true even large-cap fintech peers PayPal (NASDAQ:PYPL) and Block, Inc. (NYSE:SQ) have suffered in this environment with losses nearing 60% since November. Still, at a mid-cap valuation of $5.60 billion and a historically low and now reasonable price-sales multiple of 5.2, SOFI stock’s growth narrative is now colliding with longer-term value.
I’m far from alone in thinking SoFi is a bargain, though.
Wall Street’s analyst community is also bullish without worryingly high levels of optimism. That observation is based on a mixed 7 “buy” recommendations and 5 “holds”, coupled with a consensus low price target of $10 and an average forecast of $14.41 per share. And that’s massive upside from the current price of SOFI stock.
Bears on Skewers in SOFI Stock?
InvestorPlace’s Luke Lango has enthusiastically called “the Amazon of Finance.” And it makes sense. SoFi Technologies has gone from its humble start in student loans to a digital-first, ecosystem of services and products that’s continued to grow revenues and expand its reach smartly during the pandemic.
Yet, similar to AMZN stock’s early days, the journey in SoFi Technologies hasn’t been without its share of critical bears and who, as a group, have respectfully been on the right side of the SOFI stock trade.
Much of SoFi’s bearish condemnation has been the outfit’s moratorium risk tied to its Federal student loan portfolio. But at this point, critics of SOFI and the stock’s 16% bearish short interest may be looking at the trees rather than the forest.
In lieu of the severe selloff in shares, as MoffettNathanson’s Eugene Simuni noted after last month’s extension through August, a moratorium through the end of the year is “already priced into the stock.”
Another Achilles heel for SOFI bulls that’s likely run its course is stock based compensation (SBC). SOFI stock’s SBC is on the larger side of paying talent compared to its peers. The expense has also proven much higher than many investors had anticipated.
But as Seeking Alpha’s Christopher Hoeger recently laid out about SOFI stock, “roughly 5% dilution from SBC in exchange for 45% revenue growth, a tripling of EBITDA and doubling of margins sounds more than reasonable.” I’d agree with that.
SOFI Stock Takeaway
Obviously, SOFI isn’t the proverbial perfect investment. Of course, its growth has been and continues to look very attractive. On the other hand, though, the company is still operating at a loss and isn’t expected to turn profitable for another couple years.
Also, were living in an overly-fearful, risk-off market environment right now. Where interest rates are set to be hiked another 50 basis points, or where the latest speculation is the Biden administration could forgive principal payments on student loans. In turn, SOFI seemingly has the deck stacked against it.
Lastly, and if it wasn’t already apparent, investors aren’t going to find any classic bottoming patterns in SOFI stock to make a buy decision appear more attractive. Sorry.
Collectively, the bottom line is that if it was that easy to reach a buy decision, everyone would be doing it and the opportunity would cease to exist. So if you happen to be like me and see SOFI stock as an even stronger contrarian investment today or only now believe SoFi is worth purchasing, make that buy decision a stronger one with a fully-hedged and actively-managed SOFI stock collar.
On the date of publication, Chris Tyler holds long positions in SoFi Technologies (SOFI) (either directly or indirectly), but no other positions in securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
