The discussion about falling interest rates is no longer a theoretical exercise, as the Fed Chair Jerome Powell confirmed in a recent speech that “the time has come for policy to adjust.”
This shift is expected to ripple through the market, particularly affecting lending firms such as SoFi Technologies (NASDAQ:SOFI).
On the upside, lower borrowing costs could boost SoFi’s business by encouraging more businesses and individuals to take on debt. However, it also carries a drawback – tighter profit margins. The narrowing difference between borrowing costs and the interest rates charged to customers could put pressure on the company’s bottom line.
So, how can investors expect SoFi to weather the coming interest rate cuts? Top investor Daniel Jones thinks they will do just fine.
“When interest rates come down, there’s an opportunity for the company to make up for this in the form of greater volume,” writes the 5-star investor, who is in the top 2% of TipRanks stock pros.
Jones is confident in SoFi’s management to steer the ship in the right direction. He points to a range of positive metrics, including rising revenues, net income, and EBITDA, as well as increased guidance for 2024, which has jumped from $300 million-$500 million to $800 million-$1 billion – a “bright spot for the company,” as Jones notes.
Jones’ belief in SoFi is bolstered by the fintech company’s ability to continue growing its customer base despite the tough macroenvironment earlier this decade. “In a high-interest rate environment, borrowing activities tend to drop. But clearly, management is doing something right,” the investor opined.
However, Jones also warns that an extended period of rate cuts could eventually harm the company’s prospects by reducing the revenue generated from interest-earning assets.
“My hope is that continued growth in the firm’s tangible book value will help to create enough value for shareholders that even difficult times won’t be problematic,” Jones summed up.
Ultimately, Jones gives SoFi shares a Buy rating, signaling his cautious optimism in the company’s ability to navigate the evolving financial landscape. (To watch Jones’ track record, click here)
However, Wall Street analysts aren’t as confident. With 7 Hold (i.e. Neutral) ratings, 5 Buys, and 3 Sells, the stock has a Hold consensus rating. Its 12-month average price target sits at $8.27, suggesting about 10% upside over the next year. (See SOFI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
