Friday, February 23, 2024
Stocks To Buy

SOFI Stock: Will a Lending Slowdown Hurt Its Share Price in 2024?

Despite a mixed SOFI stock forecast, the fintech is a buy for aggressive investors

In putting together this SoFi Technologies (NASDAQ:SOFI) stock forecast, there was a lot to take into consideration. SOFI stock is down more than 20% on the year. It closed 2023 at $9.95. It had 12 out of 18 trading days in negative territory leading up to its Jan. 29 earnings report, in which it delivered its first-ever quarterly profit. SOFI stock jumped 20.2% on the news. 

Talk about volatility, this stock has yet to decide which way to go. Investor thinking is difficult to comprehend right now. SoFi could become a force in U.S. banking and wealth management. I don’t believe SoFi CEO Anthony Noto is the second coming of Jamie Dimon, though he’s a good CEO. My biggest question: I’ll begin this SoFI stock forecast by comparing the bullish and bearish arguments. 

The Significance of Its First-Ever Profit

SOFI shareholders felt good about themselves after the Q4 2023 report.

Analysts thought it would break even in the fourth quarter, but its two-cent beat was significantly better than the Q4 2022 loss of five cents.

Further, its adjusted net revenue of $594.25 million in Q4 2023 was 3.9% higher than the analyst estimate of $572 million. Its lending business experienced significant revenue growth of 45% year-over-year, with home loans leading up 193% to $308.9 million, or 7.1% of total origination volume, 360 basis points higher than Q4 2022.

Over 2023, personal loans had the highest increase in origination volume, up 41%, to $13.8 billion, or 79.3% overall, 410 basis points higher than 2022. 

While student loans got a lot of the press over the 3.5 years payments were paused for over 20 million Americans, the reality is they only accounted for 15% of the new student loans in 2023 and 30% of the $22.12 billion in loans outstanding as of Dec. 31, 2023. Further, the average coupon rate for home loans was 13.8%, more than double student loans at 5.6%.

In 2023, it finished the year with more than 7.5 million members, 44% higher than a year earlier. 

“Continued growth of over 40% in both total members and products, along with improving operating efficiency, reflects the benefits of our broad product suite and unique Financial Services Productivity Loop (FSPL) strategy,” Noto said in its Q4 2023 press release.

As a result of its Q4 2023 results, Deutsche Bank analyst Mark DeVries raised his SOFI target price by $1 on Jan. 30 to $12, although he does have a Hold rating on the stock. 

Analysts overall are very lukewarm about its stock. Of the 20 that cover it, only four have it as a Buy, with 12 a Hold, and four a Sell, with a $9.13 target price.

Morgan Stanley Says It’s a No-Go 

The investment bank didn’t like SoFi’s commentary in its Q4 2023 conference call about 2024. Specifically, Noto’s comments about its Tech platform and Financial Services segments driving most of its growth in the year ahead, upping their contribution to revenue from 38% in the year just passed to 50% in 2024. 

As a result, Morgan Stanley cut their rating to Underweight from Equal Weight, with a 50-cent cut in its target price, to $6.50, below where it’s currently trading. It had upgraded the stock to Equal Weight in October. 

“However, with shares now more than 20% higher since then [October], and trading at a price to tangible book value of ~2.4x, we believe the stock is pricing in too much optimism on the path to 2026 profitability laid out by SOFI, all while staring in the face of a worsening top-line growth outlook for 2024,” Barron’s reported the analysts’ comments from their note to clients. 

SoFi believes it can earn at least $0.07 in 2024, rising to between 55 and 80 cents by 2026. That’s based on 20-25% compound annual revenue growth in 2023 through 2026. Morgan Stanley has its doubts about sustaining this revenue growth.  

The SoFi Stock Forecast

While it’s easy to see why analysts are reluctant to jump on the SOFI bandwagon, I think it’s prudent to sacrifice some lending growth until it knows what the interest rate environment will be for the second half of 2024 and beyond. 

SOFI is not a stock for the faint of heart. However, if you are risk-tolerant, its share price below $10 remains an attractive entry point for a long-term (3-5 years) position. 

I continue to believe SOFI is a Buy.  

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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