SoFi Technologies (NASDAQ:SOFI) has been riding a wave of momentum, with its shares surging an impressive 120% over the past three months. Driving this rally is a strong mix of catalysts, including the market’s reaction to Trump’s election victory and a standout Q3 performance.
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According to Bank of America analyst Mihir Bhatia, SoFi’s execution has been nothing short of “solid,” and he anticipates that the student loan refinancing business will benefit from less favorable loan forgiveness policies under a Trump administration.
“That said,” the analyst adds, “after the rally, we believe valuation is ahead of fundamentals and SOFI is priced to perfection.”
There are several concerns here. For one, in 4Q23, SoFi provided a preliminary guide for 2026, projecting an EPS range of $0.55 to $0.80 and future EPS growth of 20-25%. On the surface, Bhatia thinks this “bottom-line growth algorithm” appears appealing and suggests a potential upside vs. the current 2026 consensus estimate of $0.48 (the BofA estimate stands at $0.52). However, the ambitious growth outlook introduces “increased execution risk,” and in Bhatia’s opinion, the valuation is rich even when considering the upper end of the guidance range. In fact, with a valuation of 32x 2026 EPS, the premium looks excessive.
“Faster growth warrants a premium but at 3x other consumer finance lenders, further multiple expansion seems difficult from here,” Bhatia went on to say.
On top of that, Bhatia highlights recent conversations with investors, during which there has been growing concern about fair value marks and changes, particularly in relation to hedging activities. The $273 million hedge losses in 3Q, including “spread impact” of about $150 million, have raised worries that these losses could exacerbate with more rate cuts and “potentially increased volatility.” Additionally, higher fair value marks will be amortized, which could pressure non-interest income.
On another issue, the growth outlook for the Tech segment was lowered because deals and partnerships are taking longer to close than expected. “While SOFI noted that deals have not been lost, visibility on revenue acceleration is less clear,” the analyst opined.
Bottom line, based on its current valuation, Bhatia views the “risk-reward less favorably” and has downgraded his rating from Neutral to Underperform (i.e., Sell). Bhatia’s $12 price objective factors in a one-year slide of ~23% from current levels. (To watch Bhatia’s track record, click here)
2 other analysts join Bhatia in the bear camp and with an additional 5 Buys and 6 Holds, the consensus view is that SOFI stock is a Hold (i.e. Neutral). However, that might as well be a Sell, considering the $11.46 average price target suggests the stock is due a 26% correction over the next 12 months. (See SOFI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
