After a months-long slump, SoFi Technologies (NASDAQ:SOFI) shares re-entered the fast lane late last month. A resurgence in bullishness has proposed SOFI stock from just above “penny stock territory,” back up to the high single-digits per share.
It’s no mystery why this stunning reversal has taken place. With the recent U.S. Debt Ceiling package bringing an end to the “student loan saga” (more below), a key hesitation among investors for this stock has now dissipated.
The mystery now, however, is whether SoFi shares will keep climbing, or if the fintech firm/neobank’s latest rally will soon lose momentum. On one hand, there may be a big macro factor that causes shares to start reversing course.
On the other hand, perhaps an upcoming company-specific event could give this rally further runway. With this, what’s the best move to make with this stock? Let’s find out.
How Congress Made SOFI Stock Hot Again
The U.S. Congress may have an abysmal approval rating of just 16% (according to Statista), but I’m willing to wager that SoFi investors are more-than-happy with the outcome of the latest Debt Ceiling battle on Capitol Hill.
As I hinted above, this bill bodes well for SOFI stock. One provision in this legislation, signed into law last week by President Biden, brings a definitive end to the pandemic-era federal student loan moratorium.
Student loan repayments will begin after Aug. 29, and the President is now unable to extend the pause yet again.
With this, there is now greater confidence that SoFi will meet its financial targets for later this year. Why? A resumption of student loan repayments/interest accruals points to greater demand for SoFi’s student loan refinancing services, which since 2020 have been largely dormant.
This increased demand could also translate into growth for this digital-first financial supermarket’s other banking, brokerage, and other financial services.
All of this gives credence to management’s assertion that it will achieve GAAP profitability by the last quarter of 2023. In short, it makes perfect sense why this stock has rallied by more than 40% in a short span of time.
What Could Move Shares from Here
Predicting near-term price movement for any stock if easier-said-than-done. SOFI stock is no exception. One can easily craft an argument that this rally will continue through the summer, as they can craft an argument that it will soon come to an abrupt end.
For instance, SoFi’s next earnings report (expected to occur in late July) is something that may provide shares with an additional lift. As was the case last quarter, the company could again deliver another “beat and raise” (better-than-expected results, upward revisions to guidance).
Management could also provide more details on the company’s potential move to profitability during the December quarter. This too could further boost bullishness. It may even be enough to catapult SOFI back to double-digit price levels.
Yet while earnings could give the stock further runway, there is an event preceding it that may cause the shares to move in the other direction.
Within a week, the Federal Reserve will reveal whether it plans to pause further rate hikes, or if it will keep raising them in its efforts to curb inflation. As InvestorPlace’s David Moadel recently argued, if the Fed goes with the latter, it may be problematic for SOFI stock.
The Best Move Now
Although there are some positives for SoFi (such as higher net interest margins) if rates move higher, I concur with Moadel that further rate hikes will be perceived to be a negative for shares. Higher rates could extend the economic slowdown, affecting SoFi’s rate of growth in the near-term.
That said, if there is another round of high volatility with SOFI, it may work to your advantage, assuming you are approaching it as a long-term investment.
As I have pointed out in past coverage, once macro uncertainties clear up, SoFi is likely to hit levels of profitability sufficient to sustain a valuation of at least $1o per share. Other factors point to it bouncing back to even loftier price levels.
While you may have missed your chance to buy SOFI stock before its Debt Ceiling rally, consider any weakness from here as a buying opportunity.
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.