Sofi Technologies Is Still a Buy Down Near Current Levels

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Sofi Technologies (NASDAQ:SOFI) has been incredibly volatile over the last few months. In May, SOFI stock bottomed along with most other high-growth stocks. That was as the group’s bear market came to an end. 

the Social Finance (SoFi stock) logo is displayed on a smartphone.

Source: rafapress / Shutterstock.com

Soon after, shares erupted, nearly hitting $25 and for a moment climbing more than 75% from the low. That high came less than a month after Sofi dropped, so it didn’t take too long for shares to plunge back toward $15. 

At the time, I was a buyer near $15 and bulls experienced a nice rally to $17.50 ahead of earnings. However, that report did not go so well. Here’s what you should know about SOFI stock moving forward.

SOFI Stock and the Earnings Rumble

SOFI stock gapped down by over 10% on Aug. 13 in response to second-quarter results. Shares fell a total of 21.25% amid three straight down days following earnings. While SOFI ultimately bottomed near $13.50 and has since reclaimed $15, it was discouraging to see the stock react to earnings in the way that it did.

For the quarter, earnings missed expectations while revenue of $231.2 million beat estimates by 6%. However, guidance for next quarter was soft versus analysts’ expectations. 

That said, there are a couple of things to point out here. First, there were only two analysts with official Q3 estimates. It’s not great to miss expectations, but there’s a big difference between several dozen analysts on record and just two. And secondly, management still reiterated its full-year outlook of $980 million. So, to knock this name down to the tune of $2 billion-plus in market capitalization for a supposed disappointment for one quarter seems unjustified.

This is likely why we’ve seen a rebound in the SOFI stock price. Now, it will be key for management to deliver going forward. 

Breaking Down Sofi Technologies

Whether or not the post-earnings selloff was an overreaction hardly matters at this stage of the game. The reality is that SOFI stock represents enormous opportunity — if the company capitalizes on its long-term goals. 

If it can’t, one could argue there’s limited downside because of the low stock price. Still, while that’s true to an extent, it’s not like Sofi has a low valuation. Shares trade at roughly 12 times this year’s revenue forecasts. Meanwhile, analysts expect the company to lose 52 cents a share this year and 7 cents next year, according to Yahoo! Finance.

If we value Sofi like a bank — like Bank of America (NYSE:BAC) —  it’s quite expensive. But if we value it like a fintech — like Paypal (NASDAQ:PYPL) — it’s cheap. So, it will all come down to execution. 

Estimates call for 50% revenue growth to $1.45 billion next year. We’re not focused on that, though. Instead, management’s focus is on the long term. They expect revenue of almost $3.7 billion by 2025. They also see adjusted EBITDA hitting almost $1.2 billion by 2025. 

Where’s the growth coming from? 

Currently, more than 80% of the company’s revenue comes from lending (i.e. banking). The other 2% and 17% comes from its financial services unit and tech platform unit, respectively. In 2025, management expects those revenue segments to account for 43%, 32% and 25%, respectively. 

In other words, Sofi has massive expectations to drive growth in its financial services and tech platform businesses. Amid that effort, they believe this will drive adjusted EBITDA results higher, improve margins and lower the company’s dependability on banking. 

If that’s the case — and that’s a big if — SOFI stock is cheap right now. 

Trading SOFI Stock

I consider this a high-risk stock, because there’s a huge possibility that Sofi Technologies simply doesn’t live up to these expectations. Or, put another way, there’s a chance it doesn’t even get close to management’s multi-year outlook.

But if it does, SOFI stock could rip. 

For buyers looking for a more speculative position, it helps that the stock has come down considerably. From here, I want to see SOFI hold up over the $14.70 mark. That has been a line in the sand and bulls must be relieved to see it back above this level. However, shares are trending lower. Should it break $14.70, bulls have to be open to the idea that it could retest the August low. 

Above $16.15 and SOFI stock could test up to the 21-week moving average and the $17.50 level. If it clears these measures, $20 could be on deck. 

On the date of publication, Bret Kenwell held a long position in SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell

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