Shares of SoFi Technologies — a San Francisco-based financial services provider in which I own shares — are trading 52% below their April 2021 high of $25. Does this mean the stock will continue to fall or is it a buy?
Despite its losses which may have caused increased betting against the stock – as I wrote I wrote last September, short interest rose 33% to 4.3% last August and have since climbed to 18.2% – here is the case for buying these stocks:
- Financial performance and outlook above expectations
- Continuous investment in new products and more efficient operations
- High price targets for analysts
Financial performance and outlook above expectations
SoFi is a financial services company that was initially known for its student loan refinancing business. SoFi has since added new products including personal loans, credit cards, mortgages, investment accounts, banking and financial planning. Through its acquisition of Galileo in 2020, SoFi also provides payment and account services for debit cards and digital banking.
SoFi stock rose more than 6% on March 2 on the back of a better-than-expected earnings forecast. According to Barrons, for the fourth quarter of 2021, SoFi posted a loss of 15 cents per share – a penny better than expectations – while its unadjusted revenue of $286 million beat management forecasts and consensus. analysts. Additionally, SoFi reported that its customer base increased by 87% to 3.5 million in 2021.
The best news for SoFi bulls was the company’s forecast that adjusted revenue would grow 55% in 2022. Management expects net income for the year of $1.57 billion, or $110 million. dollars more than the FactSet consensus. In the first quarter of 2022, SoFi expects revenue to grow within a range – the midpoint of which is 31%. That’s about $15 million below consensus because of the government’s extension until May 1 of the moratorium on federal student loan repayments, according to Barron’s.
One analyst took a bullish view of the report. According to a March 2 note from Wedbush analyst David Chiaverini, “SoFi announced an upside surprise with its 2022 guidance well above our expectations, and the combination of strong member growth and Q4 product sales drive positive momentum heading into 2022.”
Continuous investment in new products and more efficient operations
SoFi’s path to profitability hinges on its ability to cut costs as it grows. To do this, SoFi will make the necessary investments to support new services and then encourage its customers to buy more.
This could happen due to SoFi’s Financial Services Productivity Loop (FSPL), which helps the company become more efficient by adding new customers and services. As CEO Anthony Noto put it, SoFi’s FSPL increases the profitability of its accounts and services – which it invests in new products, better technology and more effective customer service.
Mizuho analyst Dan Dolev wrote last August about FSPL – noting that SoFi will encourage “user engagement, fostering a flywheel effect of more users leveraging of SoFi’s multiple services, driving further growth.” He expects this flywheel to create “operating leverage” as revenue grows, which will eventually “reduce losses and…generate profits.”
Chiaverini echoes this optimism. As he wrote, SoFi is poised for strong growth over the next five years as its brand expands with young people. “The company is a one-stop-shop for financial services and this is a significant competitive advantage over neobank competitors who tend to focus on niche offerings rather than the full financial picture.”
To that end, SoFi on Feb. 22 announced an all-stock deal to acquire banking software maker, Technisys, for approximately $1.1 billion, according to the the wall street journal. SoFi estimates the Technisys acquisition could add an additional $800 million in revenue while reducing costs by up to $85 million through 2025, the Journal noted.
The move follows SoFi’s transformation into a bank last month following its acquisition of California community lender, Golden Pacific Bancorp.
I admire Noto’s determined focus on building the company’s product line and improving its operations in the face of an inhospitable stock market.
High price targets
With SoFi shares trading near $12 per share, analysts see the stock rising. Average analysts are expecting it to rise around 58% to $18.85, according to TipRanks.
Here are some individual price targets for analysts:
- Bank of America
sees 17% upside to $14
- Oppenheimer expects 50% rise to $18
- Wedbush eyes 65% hike to $20
Dolev’s $17 price target implies an upside of around 45%. As he wrote this week, “Results were very strong, marked by improved KPIs across the board, including a further acceleration in the number of additional members, a very strong increase in revenue per member and a Galileo’s faster growth compared to previous quarters. The guidance for the year was also very optimistic and well ahead of expectations.”
Another analyst, Rosenblatt’s Sean Horgan, sees a roughly 88% rise in the stock encouraged by the possibility of an upside surprise due to SoFi Bank’s lack of meaningful Q1 revenue guidance. 2022. He also noted that “operating metrics such as Galileo counts and total revenue ‘surprised consensus on the upside,'” according to TipRanks.
The combination of Noto’s unwavering confidence and soaring short interest could send SoFi shares higher if it continues to beat expectations, forcing short sellers to buy the stock to cover their positions.