Shares of fintech company SoFi Technologies (SOFI) have rebounded more than 27% over the past three months but are still down 19.1% year-to-date. The company’s solid results and strong execution have fueled improved investor sentiment. Moreover, the Federal Reserve’s interest rate cut is expected to boost the company’s loan volumes. However, Wall Street is divided on SOFI stock. Several analysts don’t see a significant upside from the current levels due to the stock’s lofty valuation.
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SoFi’s Improving Financials
SoFi impressed investors with its second-quarter results, beating analysts’ expectations for both revenue and earnings. The company delivered GAAP profitability for the third consecutive quarter and is confident about reporting GAAP profits for the full year. Further, SoFi raised its full-year guidance.
The company’s offerings continued to gain traction, with Q2 2024 witnessing 643,000 new member additions. SoFi ended the second quarter with 8.8 million members, reflecting a 41% year-over-year growth. Moreover, SoFi continues to focus on innovation and added 946,000 products in the second quarter.
Also, SoFi is diversifying its business beyond its lending products. In Q2 2024, the Financial Services segment’s revenue grew 80% to $176.1 million. Another interesting aspect to note is SoFi’s growing deposit base, which provides the company low-cost funding for its lending business and reduces dependence on third-party sources.
Analysts Remain Cautious on SOFI Stock
Despite many positives, several analysts remain cautious about SOFI stock, mainly due to valuation concerns. Based on forward adjusted earnings, the stock is trading at a P/E (price-to-earnings) ratio of 96.6x, which is way higher than the sector average of 12.1x. Such a lofty valuation level could limit the upside potential in the stock.
In a recent research note on SoFi CEO’s presentation at the Communacopia + Technology Conference 2024, Goldman Sachs analyst Michael Ng noted that the company is encouraged by the solid momentum in its Financial Services business and expects continued growth. The company is also optimistic about the growth in the Lending business. It expects demand for student loan refinancing from customers looking to take advantage of lower rates.
While Ng acknowledges the growth in the company’s deposit base, he reiterated a Hold rating on the stock due to his concerns about loan origination demand and the profitability of the Financial Services segment.
Is SOFI Stock a Buy, Sell, or Hold?
With five Buys, six Holds, and three Sell recommendations, Wall Street has a Hold consensus rating on SoFi Technologies stock. The average SOFI stock price target of $8.27 implies a modest upside potential of 2.7% from current levels.
