Already on an upward trajectory ahead of earnings, SoFi Technologies (NASDAQ:SOFI) stock has kept soaring following the release of its latest results. Since hitting new lows in December, SOFI has bounced back by around 80%, from $4.24 to about $7.50 per share.
But while the latest numbers paint a stronger picture of the new bank’s prospects, resulting in a shift in sentiment amongst investors, I wouldn’t view this as a signal to buy, if you’ve yet to buy it.
Why? This recent rally may soon lose momentum. Once investors have completed digesting the latest results, this latest renewal of enthusiasm could quickly dissipate.
That’s not all. In the month ahead, SoFi shares could start to reverse course again. Whether from new macro-related developments (a big mover for the stock) or from a company-specific risk, there’s plenty still out there that could knock shares lower once again.
SOFI Stock and Its Post-Earnings Surge
On Jan. 30, SoFi Technologies released its fourth-quarter 2022 results. This digital-first financial institution reported net revenue of $457 million for the quarter, representing a 60% increase compared to the prior year’s quarter.
This figure also came in ahead of sell-side expectations. SoFi once again reported quarterly net losses ($40 million, or 5 cents per share). However, losses for the quarter came in far narrower than analyst forecasts. The sell-side consensus called for losses of 9 cents during the quarter.
But what really elicited a positive response among investors for SOFI stock after earnings were the company’s strong deposit growth during the quarter and management’s updates to guidance and outlook.
During the period, deposits were up 46% sequentially. For 2023, SoFi expects net revenue to grow between 34% and 37%, and for the bank to begin reporting positive GAAP earnings by the fourth quarter of 2023.
With these results, coming on the heels of rising hopes of an easing on macro issues such as inflation, interest rates, and economic growth, it’s easy to see why the market has gone from highly concerned, to heavily bullish, about SoFi. Again though, this sentiment shift may not last for long.
Many Factors Could Affect Future Performance
SOFI stock has a few positives in its corner right now, but many negatives could soon come off the back burner. For one, despite the recent optimism, a new wave of pessimism may take shape in the months ahead.
This hoped-for “Goldilocks” scenario may fail to materialize. Inflation could persist, interest rates could keep rising, and the U.S. economy is still at risk of entering a recession.
This could affect SoFi in two ways. A change in the overall market narrative will likely lead to a sell-off for SOFI shares. Then, over the next few quarters, if macroeconomic conditions become even more unfavorable, this could result in SoFi’s results falling short of expectations.
Besides these more macro-related risks, there is a company-specific issue as well. This may affect both future operating performance, as well as future performance of the stock. For instance, as Louis Navellier recently argued, SoFi still isn’t out of the woods when it comes to its student lending business.
While SoFi may be diversifying away from its legacy student loan refinancing business, further headwinds for this segment could affect results, irrespective of whether macro conditions improve or worsen over the next twelve months.
Beyond what could affect the stock in the near term, it’s important to also keep in mind that the long-term upside potential with this stock may be more limited than it seems.
SoFi’s transition into a chartered bank provides it with a clear path to profitability, but this may, over the long term, come at the expense of its eventual valuation. As you likely know, bank stocks typically trade at lower valuations than non-bank fintech stocks.
Based on sell-side forecasts, the most optimistic of analysts believe SoFi could earn nearly 50 cents per share by 2025. Even if we apply what could be described as an aggressive multiple for a bank (20 times earnings), that only takes the stock to $10 per share.
If SOFI stock re-tests its low (possibly, given its volatility), it may be worth a look. For now, though, it is not a good buy.