SOFI Stock Gains 7% as Analyst Raises Price Target

  • Fintech institution SoFi Technologies (SOFI) bounced conspicuously higher on Wednesday.
  • An analyst provided a positive assessment and encouraging forecast for SOFI stock.
  • Risks remain high as the underlying firm faces a shifting macro backdrop.
SOFI stock - SOFI Stock Gains 7% as Analyst Raises Price Target


Amid another soft session in the equities market, and as investors digest contrasting economic reports, SoFi Technologies (NASDAQ:SOFI) smashed through the wall of worries. Recently, an analyst reassured stakeholders that fears surrounding the financial technology (fintech) enterprise are exaggerations. While seemingly boding well for SOFI stock, prospective investors need to watch the shifting tides of the economy.

On the optimistic front, Mizuho analyst Dan Dolev believes criticisms regarding SoFi’s competitive distinction and the specter of rising interest rates are overstated. In the midweek session, Dolev raised the price target of SOFI stock to $9 from $6.

As well, the analyst kept the “buy” rating on the shares. Notably, Dolev remarked that the rising rate environment can actually favor the fintech firm. In turn, this dynamic will spark the competitive advantage that investors seek.

According to the Motley Fool, Dolev laid out a “blue-sky scenario,” in which SoFi meaningfully exceeds the $2 billion upper end of its 2023 revenue guidance. Specifically, a widening spread between the rate the company charges borrowers and the rate it pays for funds can boost the underlying financials. SoFi can accomplish this task by tapping significant amounts of low-cost customer deposits.

For its fourth-quarter 2022 earnings report, the fintech specialist handily beat its consensus revenue forecast. As well, its loss per share came in narrower than analysts expected. In addition, management stated that it expects full-year 2023 adjusted EBITDA to hit between $260 million to $280 million. On the other end, analysts anticipated $246 million.

SOFI Stock Faces Shifting Macro Tides

To be sure, SOFI stock has been the toast of Wall Street in 2023. Not only did it gain 6% on the Wednesday session, it jumped nearly 59% for the year so far. Nevertheless, investors need to be careful about approaching the opportunity too heavily.

For one thing, SOFI stock gave up around 43% of equity value during the trailing year. One of the biggest contributing factors to the erosion stemmed from the Federal Reserve’s hawkish monetary policy. Logically, higher borrowing costs tend to disincentivize borrowing.

Second, and more importantly, the nature of the underlying economy shifted. In doing so, the framework significantly impacted SoFi’s financial profile. According to the company’s Q4 earnings presentation, for year-end 2020, total loan originations amounted to $9.69 billion. Of this amount, student loans dominated the proceedings with a share of nearly 51%.

Fast forward to year-end 2022, and total loan originations tallied to nearly $13 billion. However, the allocation toward student loans only amounted to 17.3%. By far, personal loans dominated the segments, accounting for over 75% of SoFi loans.

Over time, that may be problematic for SOFI stock as personal loans are generally unsecured. Therefore, the combination of a stubbornly high inflation rate and possibly excessive consumer spending may cause payback concerns.

In addition, personal loans may cover various uses, most popularly debt consolidation. In other words, unlike student loans or home mortgages, personal loans tend not to be economically accretive; that is, they typically cover benefits consumed in the past with usually no associated forward benefits (such as the prospect of a high-paying career following graduation).

Why It Matters

While debate continues regarding the trajectory of SOFI stock, for now, it carries a moderate buy consensus rating. Further, analysts’ average price target stands at $7.61, implying upside potential of around 6%. Notably, though, hedge fund sentiment remains weak, requiring due diligence among interested investors.

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 Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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