SoFi Technologies (SOFI) - Get Free Report investors are having a tough time in 2022. Shares are down 56% from their peak in mid-June last year (just after SOFI’s IPO), and they’ve recently touched all-time lows.
Even some brief euphoria associated with the company’s highly-anticipated bank charter approval was not enough to curb SOFI shares’ freefall. However, Wall Street remains bullish on SoFi, thanks to the company’s fundamentals and forward projections.
Analysts upgraded their ratings on SoFi shortly after its bank charter was approved, and many see significant upside ahead. Are they right?
Sinking After Bank Charter Approval
Since going public in June of 2021, SOFI stock has posted sharp losses: it’s down more than 56% off its peak near $24 per share. The selloff has been consistent with broad-based weakness among growth stocks.
In mid-January, SoFi received a much-anticipated bank charter approval. That development was seen as key for SoFi’s plans to transition from a pure-play lender to a more diversified financial services company.
After the announcement, on January 19th, SOFI shares recovered about half their YTD losses, climbing 14%.
However, bullishness quickly dissolved and SoFi proved vulnerable to market corrections. Since the company’s charter approval, shares have plummeted more than 30%.
More recently, SoFi announced the purchase of Technisys for $1.1 billion in an all-stock transaction. Technisys develops banking systems that help financial institutions with day-to-day operations - e.g., processing deposits and loans - via cloud-based solutions.
There was an immediate negative market reaction. Investors were wary of the high cost of the acquisition, especially since SoFi’s $533 balance sheet is weighed down by a total debt of $3.01 billion. Plus, the company reported $30 million in net losses last quarter alone.
According to SoFi, though, the acquisition should generate an additional $500 to $800 million in revenues by 2025 and will reduce operating expenses by $80 million between 2023 and 2025.
Wall Street remains bullish on SoFi
Following the bank charter approval, five analysts have updated their ratings on SoFi stock. The consensus among them is bullish, with only one of the five having a neutral recommendation. The average price target for these most recent ratings is $18.70 - that implies a potential upside of more than 80% for the next twelve months.
Oppenheimer analyst Dominick Gabriele lowered his price target on SOFI from $28 to $18 due to his belief that volatility will continue to remain a problem for SoFi shares. But he has nevertheless maintained a “buy” recommendation - he believes that the company has a better, more diversified business model when compared to other recently-listed fintechs.
Bank Of America recently initiated coverage on SoFi shares. With a price target of $17, analyst BoA Mihir Bhatia believes that SoFi will see its margins expand to 22% in 2022 (that’s compared to only 3% in 2021).
Less bullish, with a “hold” recommendation, Credit Suisse forecasts a target price of $16.50. Even this more conservative target suggests an upside of 60%. Credit Suisse analyst Timothy Chiodo’s skepticism is due to SoFi's mortgage gain-on-sales (GOS) margin falling - he expects further tightening ahead thanks to strong competition within the industry.
What is next for SoFi stock?
The long-awaited bank charter approval for SoFi has finally happened. And yet in spite of this good news, bearishness has reigned. SOFI shares are down near their all-time lows.
SoFi is a growth stock, and shaky market conditions, spurred by concerns over inflation and interest rate hikes, have been very unfavorable to riskier, high-growth stocks lately. This has no doubt been at least partially to blame for SOFI shares’ bearish run.
However, the investments made by SoFi and the (potential) increased revenues associated with its bank charter should be positive for the stock in the long term.
The pie charts below show what SoFi’s business model 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, even though lending is expected to triple in five years.
With its shares at all-time lows, we expect volatility will remain strong for SoFi in the short term. But long-term investors may want to consider SoFi - right now, they can buy shares trading at more than 50% off their historical peak. That seems like an attractive bargain, given the company's prospects going forward.
(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 Wall Street Memes)