On Dec. 1, I argued that SoFi Technologies (NASDAQ:SOFI) stock was a buy.
Mainly, because the market’s near-term concerns about SOFI stock had resulted in shares falling to a price that was more-than-reasonable compared to this neobank’s long-term prospects.
Soon after laying out the bull case, sentiment for SOFI shifted rapidly. Within weeks, shares surged from around $7.50 to around $9.75 per share.
Given the stock’s history of experiencing temporary rallies, only to reverse course, I can understand if you’re hesitant to buy in now. If you currently own it, I don’t blame you for mulling whether now’s the time to sell into strength.
Yet before making any sort of buy/sell decision, it may be wise to take a closer look as to why this stock has rallied, and whether it’s more likely to keep surging or reverse course in the coming year.
SOFI Stock: What’s Driving the Recent Rally
Admittedly, the primary driver of SOFI’s recent rally has little to do with the company’s underlying fundamentals. Outside of a shareholder question-and-answer conference held on Dec. 4, major events and/or news directly with SoFi Technologies has been minimal as of late.
So, what’s been the strongest factor sending SOFI stock soaring? Like with most other growth stocks, this surge for shares has been in response to the latest on interest rates from the Federal Reserve. As InvestorPlace’s William White reported last week, not only has the Fed announced that it does not intend to increase interest rates any further.
With inflation cooling, the central bank has also signaled plans to begin lowering interest rates in 2024. Growth stocks are highly sensitive to interest rate news. Valued primarily on future potential than current results, a lowering of interest rates (raising present values) are bullish for growth stocks, while rate hikes are bearish.
Yet why it makes sense why SOFI stock has been moving higher, I can still see why some may be concerned. Although the Fed is now leaning more dovish, has the impact of this factor now already baked into the valuation of shares?
There’s More Than Just a Fed Pivot to Look Forward to in 2024
It’s not guaranteed that a “Fed pivot” is on the horizon. However, much suggests that such a scenario will take shape next year. Following last week’s statements from the Fed, subsequent statements from Fed officials underscore that a major shift in central banking policy is happening.
A good example is with a statement from San Francisco Fed President Mary Daly. The Fed official believes cuts may be needed in 2024, in order to prevent “overtightening,” or a situation where job losses and decreased economic activity outweigh the benefit of price stability.
For those concerned that the recent rally of SOFI stock is solely based on rate cut news, there are other catalysts that can support its current price and maybe lead to further increases.
These catalysts include a major event that is just a little over a month away: SoFi’s next quarterly earnings release, scheduled to occur pre-market on Jan. 31. In this earnings release, the company could unveil that it has achieved a major milestone.
As the Bull Case Strengthens, No Need to Sell
The “major milestone” SoFi is poised to announce next month is its first quarter of GAAP profitability. At the aforementioned shareholder Q&A, CFO Chris Lapointe reiterated SoFi is still on track to achieve this. Lapointe also noted that the company expects to “maintain GAAP profitability going forward.”
A move to consistent profitability, and subsequent news of the extent in which SoFi’s earnings incrementally increase as it scales up, should help keep the stock on an upward trajectory.
During this investor Q&A, CEO Anthony Noto also stated that SoFi’s Fintech segment will produce 50% of the company’s revenue next year. SoFi’s hybrid status as a fintech and neobank, plus continued growth, will help the stock sustain a premium valuation.
As the interest rate news and Q&A takeaways strengthen the bull case, consider SOFI stock still a buy. If you currently own it, there’s no need to sell.
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.
