SoFi Technologies (NASDAQ:SOFI) is releasing its Q2 results on the 30th of July. As Investorplace previously reported, Wall Street’s expectations are high concerning the fintech firm’s earnings. Since SOFI stock has had a difficult month, the earnings report might be what the company needs to get back on track. 

This article will look at the bull, bear, and hold theses for SoFi stock ahead of its Q2 earnings and give a view on whether investors should be buying the stock, selling the stock, or holding the stock in preparation for this event.

As a preview of my analysis, I expect extreme volatility for SOFI stock given the election in the U.S. and the upcoming earnings season. In fact, we could be entering the most volatile period we’ve seen over the last four years, and conceivably over the past decade, with the VIX rising 17.58% over the past six months alone.

As for SOFI stock, situations when the VIX is growing and the market volatility is higher may open more opportunities for mispricing of the stock, either for the upside or for the downside. This also may lessen the effectiveness of analysis and increase both potential upside and downside risk depending on your position. My recommendation is to hold SOFI stock. Here are some other arguments that investors should consider.

Profitability Turnaround and Ambitious Growth Targets

The company reached GAAP profitability in the fourth quarter of 2023. It also received $88 million in earnings in the first quarter of 2024. 

Management has guided that revenue will compound by 20% annually in the near future. Management thinks It is estimated to grow to about $1.5 billion in the next few years, particularly in the financial services and technology segments. This goal is expected to be realized through leveraging its Technisys and Galileo acquisitions, amongst other efforts

Moreover, analysts are expecting a 15.41% revenue increase this year, while next year its EPS figures could reach 24 cents per share. These kinds of forecasts seem obviously appealing, but may also lead to disappointment if such targets fail. It should also be noted that the consensus of analyst forecasts also contradicts management’s revenue guidance by about 30 or so percent.

Valuation and Execution Risks

SOFI stock trades at 66x forward earnings, while its EPS next year could rise to 165.99%. The EPS rise looks appealing, however, considering it was a negative 36 cents in 2023 helps to put this number into perspective. The market values its forward earnings very highly, and it’s unclear whether its future earnings are worth this much when one discounts for execution risks. In essence, the stock’s lofty valuation leaves little room for error and could limit the upside potential.

The issue I see is that many of the levers that SOFI can pull to reach its targets are only partially within reach of it. Further integration of past acquisitions and the ability to effectively manage its partnerships with financial institutions will be the key factors for the company’s future success. I believe then this warrants a more cautious approach and not buying into the optimistic valuation implied by the market.

The Sell Case

SoFI stock has been on a free fall since the beginning of the year, especially after hitting its high in the year 2021. Even with such positive sentiments often expressed in the market, the stock has been underperforming even while the firm has been posting better financials. 

Short sellers have been able to reap big from the drop in the share price of SoFi. Currently, the short interest of the stock is at about 18% of the float which means that a large part of the market is placing its bets against the company. 

Riding the SoFi investment may be costly for investors in terms of opportunity costs as there could be other stocks in the financial or technology industries that hold better risk-reward ratios and a higher likelihood of outperforming the market. Since this stock has been underperforming consistently, it is possible that investors can put their money to better use.

I therefore recommend holding SOFI stock. Buying or selling this stock in this climate is risky and due to the increased market fear, the result will largely be a matter of luck and timing. 

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.