SoFi Technologies (NASDAQ:SOFI) shares have experienced yet another big jump. Trading at price levels last hit six months ago, it may appear now that SOFI stock, after an extended slump, is en route to making at least a partial recovery.
But while this latest spike, driven by the company’s latest quarterly results and updates to guidance, may appear to be merely the beginning of a comeback, I suggest that you take a closer look. Diving into the details, it’s questionable whether a comeback is sustainable.
The market has likely overreacted to SoFi’s latest results. In effect, those bullish on SOFI have bought on the rumor, and bought more on the news. If that’s not bad enough, several existing risks have not gone away.
Investors holding shares today could get caught off guard, if these issues with the stock (almost completely ignored today) come back into focus.
| SOFI | SoFi Technologies | $7.46 |
What Recent Results Really Mean for SOFI Stock
Last week, SoFi released its results for the fiscal fourth quarter, as well as for the full year 2022. Across all of its business segments, the fintech conglomerate, which is part bank, part fintech platform operator, part brokerage firm, reported strong year-over-year growth (60%), for both Q4, as well as the full year.
Revenue for the quarter ($456.7 million) came in well-ahead of sell-side consensus ($425.37 million). The company also reported a smaller-than-expected net loss for the quarter (5 cents per share actual versus 9 cents per share forecasted).
To top it all off, management provided an upbeat guidance update. SoFi is now expected to become profitable by the end of 2023. That’s slightly sooner than previously expected. Yet while all of this was enough to reignite investor enthusiasm for SOFI stock in a big way, it’s likely the market has gone overboard with this renewed bullishness.
Why? As I mentioned above, much of this growth/forthcoming swing to profitability was already factored into SoFi’s valuation at lower price levels, and there are several things that could prevent this rosy outcome (continued high growth, swing to consistent profitability) from playing out.
The Bar Is Now Set Very High
Before the recent turbo-charged rally for SOFI stock, shares changed hands for just under $5 per share. Yet even at this low price, the stock wasn’t necessarily a bargain.
Given estimates that (at the time) called for earnings of 35 cents per share by 2025, shares were trading for around 12 to 14 times estimated earnings three years out. In my view, this appeared to price-in future potential as a near-certainty, as comparable banking stocks trade at similar forward multiples.
Today, however, although some analysts have slightly upped their forecasts, shares (up around 58% since early January) now trade at a premium valuation compared to future results. With the bar now set very high, SoFi needs to continue knocking it out of the park. While not an impossible feat, various issues may get in the way.
As I argued recently, one of these issues is the student loan repayment pause. If the Biden administration extends the pause once again, this may affect SoFi’s ability to hit profitability by Q4 2023. Also, there’s the risk that macroeconomic conditions continue to worsen. Besides impacting growth, SoFi’s loan delinquency rates (now lower than peers) could begin to spike if more economic challenges arise.
The Takeaway
SoFi shares have started to pull back, after their post-earnings spike. For now, depending on overall market sentiment, the stock could find support at prices between $6 and $7 per share.
However, if it becomes apparent that the “student loan saga” will negatively affect future results, or that macro headwinds are pushing up loan delinquencies SOFI could make a quick trip back to pre-spike prices. Currently “priced for perfection,” a modest change in prospects may mean outsized losses for investors hopping in today.
If you don’t own the stock right now, it’s best to stay away. If you currently own it, there’s little reason to “let it ride,” by holding onto your position. More likely to retreat below $5 per share, than spring back to double-digit price levels, selling into strength is the best move with SOFI stock.
SOFI stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
