SoFi Technologies, Inc. (SOFI) is a digital financial services company. It operates through the lending, financial services, and technology platform segments.
The company’s lending segment offers student loans and personal and home loans. In contrast, the financial services segment provides cash management and investment services through SoFi Money, SoFi Invest, SoFi Credit Card, and SoFi Relay. Its technology platform segment offers the benefits of Galileo and Apex.
SOFI reported better-than-expected revenue and earnings in the first quarter ended March 31, 2022. It registered a 49% growth in the adjusted net revenue for the first quarter. However, the company expects adjusted net revenue for the second quarter to come between 39% and 43%, which is below analyst expectations.
The stock declined 65.7% in price year-to-date and 70.3% over the past year to close the last trading session at $5.41. SOFI is trading 78% below its 52-week high of $24.65, which it hit on November 11, 2022. The stock has been under pressure due to investors’ concerns over a potential recession and the extension of the student loan moratorium till August 31, 2022.
The Education Department has repeatedly revised the end date for the payment pause on federal student loans since it began in March 2020. Most borrowers have not made a payment toward their student debt in over two years as the payment break has been extended six times. Multiple extensions of this moratorium have affected SOFI’s performance.
SOFI’s student loan origination volumes are now at less than half of the pre-pandemic levels. With inflation at a multi-decade high and the November midterm elections looming, analysts believe that the current democratic government will likely extend the student loan moratorium further, affecting SOFI, for which student loans represent a significant portion of the business.
“I think that repayment will not restart on September 1, 2022 - two months before an election,” said Mark Kantrowitz, a higher education expert.
In addition, as the Fed aggressively increases the benchmark interest rates to tackle the multi-decade high inflation, high-growth stocks like SOFI are expected to struggle as investors shift to value stocks.
Here’s what could influence SOFI’s performance in the upcoming months:
Mixed Financials
SOFI’s adjusted net revenue increased 49% year-over-year to $321.72 million for the first quarter ended March 31, 2022. The company’s net loss came in at $110.35 million, compared to a net loss of $177.56 million in the year-ago period.
Also, its loss per share came in at $0.14, compared to a loss per share of $1.61 in the year-ago period. In addition, its adjusted EBITDA increased 110% year-over-over to $8.68 million.
Mixed Analyst Estimates
SOFI’s EPS for fiscal 2022 and 2023 are expected to remain negative. However, its revenue for fiscal 2022 and 2023 is expected to increase 47.1% and 37.9% year-over-year to $1.49 billion and $2.05 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters.
Lower-than-industry Profitability
SOFI’s trailing-12-month net income margin is negative compared to the 29.08% industry average. Likewise, its trailing-12-month Return on Common Equity is negative compared to the 12.46% industry average. Furthermore, the stock’s 0.11% trailing-12-month asset turnover ratio is 46.2% lower than the industry average of 0.21%.
POWR Ratings Reflect Bleak Prospects
SOFI has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SOFI has a D grade for Quality, in sync with its negative Return on Total Assets, compared to the 1.25% industry average.
It has a C grade for Growth, consistent with its mixed financials.
SOFI is ranked #108 out of 109 stocks in the D-rated Financial Services (Enterprise) industry. Click here to access SOFI’s ratings for Value, Momentum, Stability, and Sentiment.
Bottom Line
SOFI is currently trading below its 50-day and 200-day moving averages of $6.40 and $12.45, respectively, indicating a downtrend. The stock is expected to remain under pressure as the Education Department might extend the end date for the payment pause on federal student loans.
Moreover, the downtrend might continue for the stock due to its lower-than-industry profitability. Thus, we think it could be wise to avoid the stock now.
How Does SoFi Technologies, Inc. (SOFI) Stack Up Against Its Peers?
SOFI has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Financial Services (Enterprise) stocks with an A (Strong Buy) and B (Buy) rating, such as Forrester Research, Inc. (FORR), Essent Group Ltd. (ESNT), and CPI Card Group Inc. (PMTS).
SOFI shares were unchanged in premarket trading Monday. Year-to-date, SOFI has declined -65.78%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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