SoFi (NASDAQ:SOFI) has had a heck of time finding traction all year. This should eventually change because it is not entirely management’s fault. The equity markets have also been under fire for months on end. The bears have been in charge for a while, leaving little room for the bulls to find footing. SOFI stock is down 60% this year, while the S&P 500 is down 20%.
The buyers have had luck sporadically, but haven’t been able to sustain rallies. This left stocks like SOFI struggling as they seek a bottom. Today, I will present the case that there’s nothing wrong with SOFI and that it is viable. According to Yahoo! Finance, the whole sector has been under fire for a while. So, the price action is not necessarily representative of specific SOFI weakness. In fact, it has done relatively better than Affirm (NASDAQ:AFRM) and Upstart (NASDAQ:UPST).
It doesn’t help that SoFi is still a young company on Wall Street. Even older sector stars like Block (NYSE:SQ) and PayPal (NASDAQ:PYPL) have suffered just as much. SQ and PYPL stocks have fallen by about the same percentage this year. This puts SoFi’s loss for the year into perspective.
|SOFI||SoFi Technologies, Inc.||$6.27|
Management Is Executing Well
What it has working for it is that it’s a low-dollar stock. This makes it inviting for any size investor to venture into it. I have recently entered into a starter position through options. The position is doing well so far, but my goal is for the long-term. I believe the fundamentals are solid just as they are now. What is ailing it most is the prevailing erroneous opinions, not bad facts.
Meanwhile, the company has been executing on plans well enough. Don’t take my word for it. According to Yahoo! Finance, they have quadrupled their earnings in the last four years. They do need to spend at this stage, which is not popular with investors this year. Wall Street has shied away from growth companies, fearing their thin margins.
There are also grumblings about potential loan defaults going forward in this sector. Upstart fell 60% on its last earnings report, even though it had grown the business 150%. The 2008 debacle is still fresh enough in memory that the bids disappeared for SOFI stock. Moreover, the lack of history as a public company also makes it hard to attract potential buyers.
Patient Investors in SOFI Stock Will Do Well
Eventually they will get over their apprehension, but the sooner the better. So far, SOFI stock has 11 analysts covering it, with a predominant “moderate buy” rating. Moreover, their average price target is 46.5% higher than what it is right now. If markets become higher in the future, it is likely SOFI stock will also make money for its patient investors. This will take time, so the longer your time horizon, the better.
Investing for the long-term is not dead, we just have to be a little bit edgier with it. I realize that I may have to trade around my position and I’m willing to do so. That’s why I chose to use options where I invest less out of pocket now. This affords me the opportunity to add more as I learn more about the stock.
There’s also the matter of what the U.S. Federal Reserve is trying to do for the economy. They have embarked on a war to beat the inflation they created last year. Unfortunately, in the process of doing so, they are destroying the economy. Experts prognosticate that the U.S. will register a recession in three months. What is worse is that they scheduled it on purpose to fix their mistake from last year. Because of this, I must make room for doubt in all my assumptions. Investors should not have absolute conviction in their thesis, regardless of how solid they are.
On the date of publication, Nicolas Chahine 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.