On Wednesday, January 19, SoFi stock (SOFI) - Get SoFi Technologies Inc Report featured as one of the best-performing large cap names during a generally bearish day for stocks. Shares climbed 14%, driven by the company’s long-awaited bank charter announcement.
Today, Wall Street Memes discusses the implications of the charter from a business fundamentals and investor sentiment perspective. Could this recent development turn SoFi’s fortunes around and finally lead the stock higher?
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SoFi owns a bank, so what?
For context, SoFi is a fintech company that has recently applied with the government and the Federal reserve to become a bank. This was a crucial move to allow SoFi to transition its business model from a pure-play lender to a more diversified financial services company.
The pie charts below show what this transformation will mean, in terms of revenues. In 2020, 83% of SoFi’s top line came from its lending business. Five years later, the revenue pie is expected to be much more diversified, while lending should still triple in five years.
Being a national bank will open up growth avenues for SoFi. It is unclear how much of it is already reflected in the stock price or in current P&L estimates — analysts believe in 40%-plus revenue growth per quarter through 2023, but virtually zero net earnings. Judging by the initial jolt in share price seen on Wednesday, maybe the market has yet to fully factor in the upside.
To the moon? Beyond fundamentals
The other key factor that should be mentioned is investor sentiment. Since going public, in June 2021, SOFI stock has posted sharp losses: down 40% from around $23 per share in barely half a year. The selloff has been consistent with broad-based weakness in growth stocks.
Following the bank charter news, SOFI recovered about half its 2022 YTD losses in only one trading session. As shares inched 3.5% higher still in after-hours trading, SOFI could become a rare case of positive momentum growth stock amid a market correction.
Add to the momentum story the fact that SOFI is a top ticker among Reddit users, as depicted below. If anything, 2021 has proven that popularity among retail investors can be a factor driving share price higher — think AMC stock (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report, for instance. Something similar could happen to SOFI too.
Also keep in mind that SOFI’s short interest is relatively high, at 8% of the float. This is substantially higher than Tesla’s (TSLA) - Get Tesla Inc Report 3%, for example. With so many traders holding a bearish position, a sudden jump in share price could trigger short covering, which could be good news for current SOFI shareholders.
SOFI stock surged when the company announced its long-anticipated bank charter. Has the share price climbed enough, or could this be just the beginning of a bullish wave?
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)