Sentiment for SoFi Technologies (NASDAQ:SOFI) stock tends to ebb-and-flow, and right now sentiment is shifting back toward bearish for two reasons. One has to do with the stock itself, while another has to do with potential unfavorable public policy changes. It may seem a SoFi downturn could last a while.
I wouldn’t jump to that conclusion based as the upcoming earnings report may help to drive a sudden shift back towards bullish. That’s not to say you need to buy right ahead of this event, or sell if you buy today and said event sparks a rally. However, if you have a long time horizon, this latest pullback is yet another opportunity to enter/increase a position. Here’s why.
SOFI Stock Could Rally
Climbing back to double-digit prices, SoFi shares ended 2023 on a high note. Thus far in 2024, though, shares have moved sharply lower. Over the past few weeks, this stock has tumbled to the tune of 24%, back on down to around $7.50 per share. As mentioned above, shares have sold off for two reasons.
First, recent updates have been made to sell-side ratings/price targets. The market took to heart an analyst downgrade issued on Jan. 3 by KBW’s Michael Perito, who argued for caution because of valuation concerns. Last week, while not downgrading shares, Mizuho’s Dan Dolev cut his SOFI stock price target on valuation grounds, as InvestorPlace’s Eddie Pan reported Jan. 18.
Second, as InvestorPlace’s Larry Ramer discussed recently, it’s possible that the market is concerned about the impact of the Biden Administration’s continued actions to forgive student loan debt. Student loan forgiveness is a negative for SoFi’s legacy student loan refinancing business.
Worse yet, a Biden re-election victory this November could increase the chances that the administration tries again to enact widespread loan forgiveness. Still, while right now the market’s focus is on negatives like these, focus could soon shift back to the positives. Here’s how.
Next Week’s Earnings Release
Pre-market on Jan. 29, SoFi Technologies will release its results for the fourth quarter and full year 2023. Admittedly, between the recent price action, as well as the high number of downward revisions to analyst earnings forecasts, Wall Street clearly isn’t psyched about this upcoming event.
But while it may seem like investors are ready to keep on selling after earnings, I wouldn’t rule out the possibility of a repeat of how the market reacted to Q4/full year earnings last year. As you may recall, SOFI stock zoomed higher last January, after the fintech beat on earnings, and guided to hit GAAP profitability by Q4 2023.
In the quarters since, SoFi has kept on reiterating that Q4 GAAP profitability will be achieved. Next week, if actual results show SoFi making a move out of the red, this, coupled with other promising key performance indicators like deposit and customer growth, may elicit a positive reaction from the market.
Again, I’m not saying you should buy SOFI now, simply to flip it at a quick profit post-earnings. However, it’s very possible that today’s opportunity to scoop up this stock at around $7.50 per share may not last long.
The Verdict: Buy Now, and on Any Subsequent Weakness
While uncertain, SOFI could zoom back to $10 per share on a strong earnings report. Even if shares slip again to single-digit prices, such a move will be yet another opportunity to build up a long-term position.
Why am I still so bullish on SoFi Technologies over the long haul? SoFi’s focus on attracting and retaining young, affluent customers seems to work. As I’ve argued before, thanks to operating leverage, steady customer growth could cause exponential earnings growth.
Second, with its combination of a digital banking business along with a financial technology business, at scale I believe SoFi will be able to sustain a premium valuation compared to bank (which typically trade for around 10 earnings, or less)
All of this suggests SOFI stock could be worth substantially more in the years ahead. Hence, consider now, or any subsequent weakness, as perfect times to buy.
On the date of publication, Thomas Niel did not hold (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.