The perma-optimists can tout SoFi Technologies (NASDAQ:SOFI) all day and all night as the future of fintech. SoFi Technologies remains a lender, despite the company’s efforts to convince otherwise. SoFi stock deserves a “D” grade in a high-interest-rate environment.
Plus, there are share-value dilution concerns that SoFi Technologies’ investors should know. We want you to be selective with your financial-sector holdings, and loading up on SoFi Technologies shares is a high-risk, low-confidence strategy in 2024.
Why SoFi Stock Keeps Falling
Sometimes, a company will try to rebrand itself out of desperation. SoFi Technologies is a case in point, as the company’s management wants you to believe that 2024 is a “transitional year” for SoFi Technologies.
More specifically, SoFi Technologies’ management wants to convince people that the company is shifting away from lending. Supposedly, SoFi would rather focus on other, non-lending financial services and on the company’s technology platform.
You can’t fool the market, though. Stock traders know that SoFi Technologies continues to derive substantial revenue from its lending business.
That’s problematic when interest rates remain high, and when the government continues to cancel and/or forgive federal student loan debt.
In the first quarter of 2024, SoFi Technologies increased its number of lending-segment products on a year-over-year and quarter-over-quarter basis. Can the company really claim, then, that it’s pivoting away from its lending business?
Meanwhile, SoFi Technologies’ Q1-2024 lending-segment net revenue declined 2% YOY. Furthermore, within that segment, SoFi’s noninterest income tumbled 53% YOY.
If this keeps up, SoFi Technologies’ lending segment could cause ongoing financial problems for the company.
Share Dilution Isn’t an Ideal Solution
Oftentimes, it’s not a positive sign when a company resorts to debt issuance to raise capital. That debt isn’t free money for the company, as it must be repaid with interest.
On that topic, SoFi Technologies CEO Anthony Noto actually bragged about his company’s mega-scale debt issuance. Noto noted that SoFi Technologies “issued $862.5 million of convertible notes due in 2029″ — which, again, will have to be repaid along with interest expenses.
Then, Noto continued to try and spin a worrisome event into something positive. He stated that SoFi Technologies “exchanged $600.0 million principal of our convertible notes due in 2026 for shares of SoFi common stock at a notable discount to par.”
Naturally, this type of behavior raises concerns about share-value dilution. It could also erode trust in the company if SoFi Technologies makes a habit of share issuance/conversion.
Suffice it to say that stock traders haven’t been particularly pleased with SoFi Technologies’ capital-raising efforts. Can you really blame skittish investors for their concerns about SoFi?
Hold Winners and Cut Losers Like SoFi Stock
Let your winners run and cut your losing investments short. It’s an age-old principle that you can apply to SoFi Technologies this year. After all, anyone who has held SoFi shares for six months, a year or three years is in a losing position.
It’s wise to let go of the wrongheaded assumption that SoFi stock is somehow “due” for a bounce. We’re assigning the stock a “D” grade and aren’t recommending a share position in SoFi Technologies right now.
Frankly, the evidence doesn’t show that 2024 really will be a good, “transitional” year for SoFi Technologies and its loyal shareholders.
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.
