Following serious questions about the stability of the U.S. regional banking sector, SoFi Technologies (NASDAQ:SOFI) helped assuage some of these concerns with a conspicuous pop on Friday afternoon. Social media buzz bolstered SOFI stock to approximately 6% up, with rumors circulating that the financial technology (fintech) specialist acquired a mortgage lender. Though intriguing, prospective investors will want to navigate this arena carefully.
Specifically, a Reddit post declared that SoFi “acquired a top rated mortgage lender and servicer.” Further, the alleged buyout would vertically integrate within SoFi’s corporate umbrella. Apparently, the fintech provider’s management team long signaled the acquisition. Additionally, the target enterprise represents a seasoned, data rich and automation-driven leader.
While the post claims the takeover is “live” as of March 30, 2023, the terms have not been disclosed. Additional posts on Twitter claim that the filing date was March 30, 2023 and that the articles would be effective April 3, 2o23.
It’s important to emphasize that the above rumors associated with SOFI stock are just that: rumors. As of this writing, no reputable news sources have picked up this story. A Google search reveals only the aforementioned social media chatter, along with a YouTube video on the topic.
If True, What Are the Implications for SOFI Stock?
Nevertheless, to entertain some speculative ideas regarding the rumors linking SOFI stock to a merger with Wyndham Capital, the main concern centers on the terms of the deal. No social media posts so far have stated anything about the mechanism of the merger.
If SoFi went with an all-cash deal, the circumstances may be more favorable for SOFI stock in terms of sustaining its recent rally. Based on its fourth-quarter 2022 earnings presentation, SoFi has $1.42 billion in cash and cash equivalents. However, its total debt amounts to $5.49 billion. According to Gurufocus, SoFi’s cash-to-debt ratio (on a trailing-year basis) comes out to 0.25. This metric ranks worse than 51.37% of the credit services industry.
On the other hand, if the deal involved some elements of dilution, then this would naturally spark some concerns among longtime shareholders of SOFI stock. True, it bounced up over 34% on a year-to-date basis. However, in the trailing one-year period, it’s down about 36%.
Other factors to consider is the viability of SOFI stock amid broader fundamental concerns. For example, while many experts apparently appear satisfied that the federal government responded quickly and appropriately to recent regional bank failures, it’s important to realize that all actions have reactions.
In addition, the Federal Reserve and future monetary policy will almost invariably dictate economic dynamism moving forward. Should the central bank continue to raise interest rates, the action will backload housing market pain as fewer prospective homebuyers would qualify for mortgages. However, lowering rates will frontload the pain as fewer buyers will be able to afford raised home prices.
Either way, acquiring a mortgage lender seems particularly risky at this juncture.
Why It Matters
At the moment, TipRanks reveals that Wall Street analysts covering SoFi Technologies rate its shares as a consensus moderate buy. Among 10 experts voicing their assessments within the past three months, seven rate SOFI stock a buy while three rate it a hold. On average, their price target stands at $8, which represents about 32% upside potential.
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.