SoFi Technologies (NASDAQ:SOFI) fell over 15% on Tuesday, March 5. This drop came after the company announced the pricing of $750 million in convertible senior notes due in 2029. The notes carry an interest rate of 1.25% per annum, payable semi-annually. The company’s plans to raise funds sparked concerns among investors over potential capital dilution, leading to the selloff.
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Notably, on March 5, Wedbush analyst David Chiaverini reaffirmed a Sell rating on the stock with a price target of $3. Chiaverini highlighted that the conversion of convertible notes into a substantial number of shares poses a significant risk of equity dilution for existing shareholders. Furthermore, the analyst highlighted a slowdown in the expansion of SOFI’s balance sheet.
Investors should note that the company’s outstanding share count stood at 945.02 million at the end of 2023, compared to 900.89 million at the end of 2022. Thus, the latest move exacerbates fear of further equity dilution for existing shareholders.
Is SoFi a Buy or a Sell?
SoFi stock is down about 27% year-to-date on worries of an expected slowdown in lending and fear of equity dilution. On January 31, Morgan Stanley analyst Jeffrey Adelson downgraded SoFi stock to Sell from Hold. Adelson lowered the price target to $6.50 from $7. The analyst expects SoFi’s revenue growth rate to moderate in 2024 due to the pressure on lending. Meanwhile, the majority of analysts remain sidelined on SOFI.
SOFI stock has a Hold consensus rating with four Buy, eight Hold, and four Sell recommendations. Analysts’ average price target of $9.13 implies 25.58% upside potential.
