Since reporting quarterly results at the end of last month, SoFi Technologies (NASDAQ:SOFI) stock has delivered a mixed performance.
After surging immediately after the fintech firm’s latest earnings report, SOFI stock has since pulled back into the single-digits, and is still trending lower.
Yet while this may frustrate those who have entered a position recently, especially those who bought during SOFI’s post-earnings surge, don’t view this latest reversal in price as a sign that the story here is changing for the worse.
Although it is far from certain how this stock will perform in the near-term, as the long-term growth potential of this financial services industry “disruptor” remains intact, the chances of higher prices for shares down the road remain very strong.
With this, instead of heading for the exit/steering clear, SOFI’s recent moves may be favorable to new and existing investors. Here’s why.
Why Investors are Once Again Cautious
On one hand, it makes sense why the market had a positive reaction to Sofi Technologies’ latest results, and updates to guidance.
The company’s results last quarter ($498 million in net revenue, $76.8 million in adjusted EBITDA) represented massive growth compared to the prior year’s quarter, and came in ahead of expectations.
Alongside beating on expectations, the fintech also raised its full-year 2023 outlook. Based on metrics such as total deposits and total membership, things continue to move in the right direction.
It also makes some sense why, after bidding up SOFI stock by nearly 20% on these strong results, the market has knocked shares back down to pre-earnings price levels.
Since then, another sell-side analyst has complained about SoFi’s valuation. As you may recall, a few weeks before earnings, I discussed how Morgan Stanley’s Jeffrey Adelson issued a bearish rating on the stock, citing its rich valuation compared to other bank stocks.
Now, even with the latest numbers accounted-for, another sell-sider (KBW’s Michael Perito) has come to a similar conclusion. As InvestorPlace’s William White reported Aug. 1, Perito downgraded SOFI after earnings, stating that “valuation has overshot the fundamental earnings outlook.”
A Buying Opportunity May be Emerging
With Mr. Market agreeing with the aforementioned analysts, is the bear case on the money? Not necessarily. Sure, it’s unclear how SOFI stock will perform in the near-term.
Still, I wouldn’t jump to the conclusion that downside risk outweighs upside potential with this stock at current prices (around $8.60 per share). A return higher may be within reach within a reasonable time frame, not just back above $10 per share, but maybe even back towards $15 per share as well.
How? For one, based on the earnings release, the neobank likely remains on track to achieve GAAP profitability by Q4 2023 (quarter ending Dec. 31, 2023). Chances are sticking to this timeline will elicit a positive response from the market. Not only that, results starting next quarter, and in the quarters ahead, may just well beat expectations.
For instance, analysts from Mizhuo recently argued, the market could be underestimating the growth opportunity presented by the upcoming end to the student loan repayment moratorium.
Don’t forget, either, that SoFi’s shrewd targeting of “high earners not well served,”points to this banking rising star potentially grabbing a large piece of the market from the incumbent big banks.
If you currently own SOFI, now is not the time to sell. In the coming quarters, continued strong operating results may finally put to bed the fear, uncertainty, and doubt that has weighed on this stock’s performance since 2022.
In fact, if you already own it, and remain bullish on the company’s long-term prospects, the stock’s latest weakness may be an opportune time to increase a position.
If you’ve yet to make this stock a holding in your portfolio, and can stomach the likely continued volatility, also consider current prices to be a great time to begin building a position.
This digital-first bank continues to report vigorous growth, a move towards consistent positive earnings, and has many growth catalysts on tap. With its myriad of strengths in mind, there’s ample reason to go against the grain with SOFI stock.
SOFI stock earns a B rating in Portfolio Grader.