Shares of the consumer-focused financial technology company SoFi Technologies (NASDAQ:SOFI) have experienced a blistering rally this year (see the chart below). Its back-to-back solid financial performances led by member growth, strength in its Personal Loans segment, and deposit inflows, even in a challenging macro backdrop, have driven its stock price higher.
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However, analysts are only cautiously optimistic about SOFI at current levels. At the same time, their average price target indicates limited upside potential.
Factors to Impact SOFI Stock
SoFi’s business took a hit from the continued extension of the pause on student loan repayments. Further, rising interest rates took a toll on its home loan originations. In addition, the recent banking crisis posed challenges for the financial services company.
However, the pause on the student loan repayment is coming to an end in September, implying that SoFi could witness an uptick in loan originations. While student loan refinance volumes are expected to recover, SoFi indicated that it doesn’t expect the revenue from student refinancing to reach pre-pandemic levels in 2023.
As for the home loan originations, the company expects to benefit from the acquisition of Wyndham Capital. However, higher interest rates could continue to hurt volumes.
While investors could wait for more clarity on the student loan refinance volumes and home loan originations, its Personal Loan business is likely to sustain its momentum and could continue to offset the headwinds from the other two segments.
SoFi’s Balance Sheet Remains Strong
SoFi’s balance sheet remains strong despite macroeconomic weakness. Its deposits grew by $2.7 billion quarter-over-quarter and exceeded $10 billion in total deposits. Impressively, over 90% of its consumer deposits come from “sticky direct deposit members,” according to the company’s CEO. Further, 97% of its deposits are insured.
SoFi’s cash and cash equivalents increased by $1.1 billion to $2.5 billion in Q1. Additionally, its on-balance sheet delinquency rates and charge-off rates were healthy at the end of the first quarter and remained below pre-COVID levels.
What is the Price Target for SOFI Stock?
The strength in SoFi’s Personal Loan business and an expected recovery in student loan originations are positives. However, near-term headwinds from higher interest rates could slow its balance sheet growth.
SOFI stock sports a Moderate Buy consensus rating on TipRanks based on three Buys and five Hold recommendations from Wall Street’s best-performing analysts. Also, due to the recent rally, the average SOFI stock price target of $9.09 implies limited upside potential of 1.7%.
