SOFI Stock: Wait for Market Sentiment to Improve Before Buying

What are investors to make of SoFi Technologies’ (NASDAQ:SOFI) stock after the online lender reported much better-than-expected fourth-quarter earnings and gave strong forward guidance?

Source: SoFi.com

SOFI stock initially jumped 10% higher after the San Francisco-based company issued stellar fourth-quarter results. However, the gain was short-lived and the share price has continued to slide backwards in recent days.

In the first week of March, SoFi’s share price declined 18%, bringing its year-to-date loss to 37%. The stock now trades at $9.84 a share and is slipping towards the $5 penny stock threshold. The pullback has been particularly painful given that SoFi’s shares were trading near $25 as recently as last November, and a number of Wall Street analysts remain extremely bullish on the company — even more so after its strong Q4 earnings.

Earnings & Acquisitions

SoFi announced fourth-quarter revenue of $286 million, up 67% from a year earlier. SoFi’s net loss in Q4 widened to $111 million from $82.6 million a year earlier.

However, the company provided some very bullish forward guidance for this year. SoFi is saying it now expects to grow adjusted net revenue 55% year over year, to $1.57 billion, and deliver adjusted earnings of $180 million for full year 2022. Those numbers, particularly the guidance, had Wall Street applauding. The median price target on SOFI stock among 11 professional analysts who cover the company is $17.50 a share, which would be 78% higher than today’s price.

The strong fourth-quarter immediately followed news last week that SoFi is buying privately held core processing company Technisys in an all-stock deal worth $1.1 billion. Core processing systems allow banks to carry out their daily operations, such as managing deposits, loans and other transactions. The acquisition is expected to be immediately beneficial to SoFi’s operations. And, during the company’s Q4 earnings call, executives said the company’s online brokerage will soon offer options trading, which will allow investors to buy or sell stocks at a certain price by a set date. The addition of options trading is the latest effort by SoFi to diversify its financial products, which already include bank accounts, loans, budgeting tools, and investments.

The company is also pushing into insurance products and cryptocurrencies.  

Fintech Downturn

On the face of it, SoFi appears to be doing all the right things — growing, diversifying and beating earnings estimates. The steep selloff in the company’s stock does not appear to be warranted. Especially when its viewed in the context of where analysts think the shares should be trading. It would appear that SOFI stock has been dragged lower by a broader decline in the shares of financial technology companies and online lenders. The stocks of leading fintech names such as Block (NYSE:SQ) and PayPal (NASDAQ:PYPL) are each down more than 30% so far in 2022, with PYPL stock having fallen more than 40% year to date.

The decline has been due to concerns about how these companies will continue their blistering pace of growth in a high interest rate environment, and worries about their exposure to volatile cryptocurrencies.

Yet, SoFi is different than the fintech companies it gets lumped in with in that its main focus is to become a full-fledged bank, albeit an online one without traditional brick-and-mortar branches. To this end, SoFi has secured a bank charter from the Office of the Comptroller of the Currency (OCC) and the Federal Reserve (Fed). The bank charter paves the way for SoFi to become a full-fledged national bank within the U.S. The company is focused on developing its mobile app and desktop interfaces, and has no plans to develop a retail network of bank branches.

Wait for Sentiment to Improve Before Buying SOFI Stock

There’s a lot to like about SoFi Technologies and the company clearly has a lot working in its favor. What’s not currently working in favor of SOFI stock, however, is investor sentiment.

With war raging in Eastern Europe, inflation running at a 40-year high, and higher interest rates imminent, now is not the best time to invest in an unprofitable, high-growth technology stock such as SoFi. Market volatility and uncertainty have investors rushing out of growth stocks such as SoFi and scurrying for safe haven assets such as gold and bonds.

In this environment, it is difficult to recommend a stock like SoFi. Especially when there’s no indication that the shares have bottomed. Investors would be best advised to wait for market sentiment to improve before taking a position.

Right now, SOFI stock is not a buy.

On the date of publication, Joel Baglole held a long position in SQ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

This news is republished from another source. You can check the original article here

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