In an age where nearly every facet of life is moving online, our financial dealings are no exception. Online-only banks have been sprouting up, providing meaningful competition to their bricks-and-mortar peers by offering a plethora of financial services.
SoFi Technologies (NASDAQ:SOFI) stands among the leading digital banks globally. Initially specializing in student loans, SoFi has since expanded into other financial products. The company currently offers savings accounts, credit cards, and insurance, among other products.
However, SoFi’s primary revenue stream still hinges on its lending operations. Recent worries have emerged amid decreased consumer spending and higher interest rates, raising doubts about the segment’s resilience.
In 1Q:24, SoFi took steps to manage these challenges by selling off $62.5 million in delinquent personal loans. While the company raised its 2024 guidance after a strong Q1, lower-than-expected Q2 guidance has tempered investor enthusiasm.
Overall, SoFi has seen its stock price fall by 32% in 2024. However, as a significant player with nearly $7 billion in market cap and over 8 million online customers, the company is showing signs of improved profitability. Could this downturn present an opportunity to buy at a lower price?
Not so fast, says investor JR Research, who believes that further selloffs could be coming.
“Investors should avoid buying SOFI dips now,” cautions the 5-star investor, as “the pain might not be over.”
JR Research does acknowledge that there are positive signs for the digital bank, including increased opportunities for cross-selling its various products as well as with its enterprise technology segment.
However, the investor believes that the market is not ready to give SoFi the benefit of the doubt.
“Growth investors likely reallocated out of SOFI as they have become increasingly concerned about its profitability pivot,” writes the investor.
Still, the JR Research has not turned its back on SoFi completely. “The risk/reward has turned much less attractive, even though a bearish rating at the current levels seems too aggressive,” writes the investor.
To this end, the investor downgrades SoFi shares from a Buy to a Hold rating. (To watch JR Research’s track record, click here)
Wall Street analysts seem to agree with JR Research’s assessment. With 4 Buy, 9 Hold, and 3 Sell ratings, SoFi is classified as a Hold. However, there appears to be some optimism hidden within these analyst reports, as the 12-month average price target of $8.61 represents a ~32% upside from current levels. (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.
