Much as I anticipated, SoFi Technologies’ (NASDAQ:SOFI) post-earnings rally was short-lived. Since hitting prices briefly topping $8 per share in the days following its latest earnings release on Jan. 30, SOFI stock has since fallen back to around $6.50 per share.
A move back down to sub-$5 per share prices may not be out of the question. However, even if that happens, one may be able to make the argument that shares in this fintech/neo-bank have re-entered the buy zone.
Yes, in past coverage of SoFi, I’ve been skeptical about the stock’s current valuation, and future prospects. However, taking another look at the situation, I’ve started to warm up to the possibility of a SOFI comeback. After struggling since 2022, it may make a recovery to much higher prices over the next few years.
Namely, for two reasons, both of which I detail below.
Why Investors Have Soured Again on SOFI Stock
It surely didn’t hurt that SoFi beat expectations in its last earnings report, and wowed investors with its updates to outlook, but that wasn’t the sole reason why shares zoomed higher between mid-Janaury and early February.
Another major factor in pushing SOFI stock higher was the market’s renewed enthusiasm for speculative growth plays. With hopes rising that the Federal Reserve would start to pivot back towards a more accommodative interest rate policy, “risk on” was back on.
However, more recently, confidence in the “Fed pivot” thesis has started to erode. The latest Consumer Price Index data indicates that inflation is still sticky.
The Fed has reiterated its hawkish stance regarding interest rates. In turn, stocks valued primarily on future potential rather than current results (such as SOFI) have reversed course.
As plenty of economic data signals a growing chance that the Fed becomes more aggressive, not less aggressive, with future rate hikes, stocks like SOFI may be at risk of a further price decline.
Nevertheless, whether at current prices or especially if shares fall back into “penny stock territory,” you may want to get ready to back up the truck.
Two Reasons Why I’m Bullish
I may be doing a 180 on my view of SOFI stock, yet I’m not changing my view arbitrarily. Taking a second look at the facts, it’s clear that there is a path to strong returns for two reasons.
First, in light of SoFi’s strong year-over-year revenue growth (60%) current consensus forecasts for SoFi are likely too conservative.
As InvestorPlace’s Josh Enomoto recently discussed, one analyst (Mizuho’s Dan Dolev) has argued that the company could handily beat revenue expectations for 2023.
Looking beyond this year, continued growth may enable the now bank-focused SoFi to report much higher earnings than the sell side currently expects.
Instead of earnings slowly climbing from 3 cents per share next year, to 50 cents by 2026, in three years’ time SoFi could be earning much more than that.
Second, despite my past arguments about SOFI ultimately sporting a bank stock valuation, it may just well be able to sustain a more tech-like multiple (20-30 times earnings). Mostly, because in a few years, SoFi’s Technology Platform segment could become a significant contributor to its bottom line.
Bottom Line: Consider SoFi a Buy
Despite my changing stance on SoFi Technologies, I still believe waiting for additional weakness is the optimal move. There’s still a strong chance SOFI retests its 52-week low ($4.24 per share).
However, while waiting could maximize your returns, you don’t necessarily need to sit on the sidelines. Locking down a position today could still prove to be a very profitable move in hindsight.
Just meeting expectations may be enough to send shares up by 100% within a year or two. If the best-case scenario plays out, an eventual return to $15 to $20 per share is within the realm of possibility.
As the bull case has started to become crystal clear, consider SOFI stock now worthy of a buy.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.