SoFi Technologies’ Stock is Out of Fashion but Still Worth Buying
SoFi Technologies (NASDAQ:SOFI) has something in common with the Los Angeles stadium on which it holds naming rights. A lot of the opposing side’s fans showed up last week. In the case of SOFI stock, shares have lost nearly a quarter of their value since the start of the year. And they’ve roughly been cut in half since mid-November.
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The swift sell-off caught a lot of analysts and investors, including me, offside. I touted SOFI stock throughout last year, even buying some. So, if you’re underwater on your SoFi investment, I’m right there with you.
No More Fintech?
Rising interest rates have made big banks great again. But it has done the opposite to the financial technology, or fintech, stocks competing with them.
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Fintechs like SoFi don’t make loans and hold them. They make loans and sell them. SoFi has ambitions to be more than your student loan officer, which is why so many analysts love the stock. Its app can handle stock sales, take deposits and even move cryptocurrency. It’s a one-stop shop for millennials’ financial needs.
As I’ve written before, there are three unique pieces to SoFi that make it a good long-term bet. First is Galileo, whose APIs let SoFi wholesale banking services as well as retail them. Second, SoFi is in the process of becoming a real bank, having bought a small Sacramento bank last year. (That deal is still before regulators.)
Third is Anthony Noto, SoFi’s CEO, who was once chief operating officer of Twitter (NASDAQ:TWTR). Before that, he was chief financial officer of the National Football League. I like to say I buy the jockey rather than the horse. I like Noto.
What’s Next for SOFI Stock?
SoFi has been successful in both adding new customers and creating new products. It brought in 377,000 new clients in the third quarter and it has positive earnings before income taxes, depreciation and amortization (EBITDA), a common valuation measure.
SoFi now has over 2.9 million customers and continues to expand. Analysts expect revenue to grow 43% in 2022 to $1.4 billion. The problem is they don’t expect it to show a profit. The consensus estimate is for a loss of 32 cents per share this year, or almost $256 million.
Wherever I look, I see analysts pounding the table for SOFI stock. Seven of the 10 analysts following it at TipRanks say it’s a “buy.” Their average price target of $21.20 is 76% above the current price.
InvestorPlace’s Louis Navellier calls it a “tempting target” on the latest dip. He admits, however, that it’s not for the faint of heart. Rising interest rates will increase SoFi’s borrowing costs.
The Bottom Line on SOFI Stock
SoFi is not a short-term play. I’ve never called it a get-rich-quick stock.
SoFi is the kind of stock you buy when it’s out of fashion. It’s out of fashion right now. It may stay out of fashion all year until technology proves it can check rising prices.
I have been buying shares of SOFI stock since August and my retirement account is out $700 on it. But it’s not my only banking holding. I have an equal amount of Bank of America (NYSE:BAC), which has been doing spectacularly well.
While BAC is a bet on stability, SoFi is a bet on growth. Fintechs like SoFi lack the technology debt of the big banks, which have been operating for years and must continually replace software. Over time, the value of SoFi’s low-cost platform will tell.
On the date of publication, Dana Blankenhorn held a long position in BAC and SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
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