Shares of SoFi Technologies (SOFI) are down more than 65% since the start of the year. The stock has been under pressure due to repeated revisions by the Department of Education to the end date of the student loan moratorium and aggressive interest rate hikes by the Fed. With the Department of Education likely to push back the end date of the moratorium again, will it make sense to buy the shares now? Read on for our take….
SoFi Technologies, Inc. (SOFI) is a digital financial services company. It operates through the lending, financial services and technology platforms segments.
The Company’s Loans segment offers student loans and personal and home loans. In contrast, the financial services segment provides cash management and investment services through SoFi Money, SoFi Invest, SoFi Credit Card and SoFi Relay. Its technology platform segment offers the advantages of Galileo and Apex.
SOFI reported higher-than-expected revenue and earnings in the first quarter ended March 31, 2022. It reported 49% growth in adjusted net revenue for the first quarter. However, the company expects second-quarter adjusted net revenue to be between 39% and 43%, lower than analysts’ expectations.
The stock is down 65.7% year-to-date and 70.3% over the past year to close the last trading session at $5.41. SOFI is trading 78% below its 52-week high of $24.65, which it reached on November 11, 2022. The stock has been under pressure due to investor concerns over a possible recession and the extension of the moratorium on student loans until August 31. 2022.
The Department of Education has repeatedly revised the end date for the payment pause on federal student loans since it began in March 2020. Most borrowers have not made payment for their student debt for more than two years, as the payment break has been extended six times. Multiple extensions of this moratorium have affected SOFI’s performance.
SOFI student loan volumes are now half of pre-pandemic levels. With inflation at a multi-decade high and November’s midterm elections looming, analysts believe the current Democratic government will likely extend the student loan moratorium further, affecting SOFI, for which student loans represent an important part of the activity.
“I don’t think reimbursement will restart on September 1, 2022 – two months before an election,” said Mark Kantrowitz, a higher education expert.
Additionally, as the Fed aggressively raises benchmark interest rates to combat decades-high inflation, high-growth stocks like SOFI are likely to struggle as investors turn to value stocks.
Here is what could influence SOFI’s performance in the coming months:
SOFI’s adjusted net revenue increased 49% year-over-year to $321.72 million for the first quarter ended March 31, 2022. The company’s net loss was to $110.35 million, compared to a net loss of $177.56 million a year ago.
Additionally, its loss per share was $0.14, compared to a loss per share of $1.61 a year ago. Moreover, its Adjusted EBITDA grew 110% year over year to $8.68 million.
Mixed analyst estimates
SOFI’s EPS for fiscal years 2022 and 2023 is expected to remain negative. However, its revenue for fiscal 2022 and 2023 is expected to increase 47.1% and 37.9% year-over-year to $1.49 billion and $2.05 billion, respectively. It has exceeded Street EPS estimates in three of the past four quarters.
Lower profitability than the industry
SOFI’s trailing 12-month net profit margin is negative compared to the industry average of 29.08%. Likewise, its 12-month return on equity is negative compared to the industry average of 12.46%. Additionally, the stock’s trailing 12-month asset turnover ratio of 0.11% is 46.2% below the industry average of 0.21%.
POWR ratings reflect bleak outlook
SOFI has an overall F rating, which equates to a strong sell in our POWR rating system. The POWR Rankings are calculated by considering 118 separate factors, each factor being weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. SOFI has a D rating for quality, in line with its negative return on total assets, compared to the industry average of 1.25%.
It has a C rating for growth, consistent with its mixed finances.
SOFI is currently trading below its 50-day and 200-day moving averages of $6.40 and $12.45, respectively, indicating a downtrend. The stock is expected to remain under pressure as the Department of Education may extend the end date of the federal student loan payment break.
Moreover, the downtrend could continue for the stock due to its lower profitability than the industry. Thus, we think it might be wise to avoid the stock now.
How SoFi Technologies, Inc. (SOFI) Works Up to his peers?
SOFI has an overall POWR rating of F, which equates to a strong sell rating. Therefore, one might consider investing in other financial services (companies) stocks with an A (strong buy) and B (buy) rating, such as Forrester Research, Inc. (FORR), Essent Group Ltd. (ESNT) and CPI Card Group Inc. (PMTS).
SOFI shares were unchanged in premarket trading on Monday. Year-to-date, SOFI is down -65.78%, compared to a -19.14% rise in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Ever since he was in elementary school, Dipanjan had been interested in the stock market. This allowed him to obtain a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan is particularly interested in reading and analyzing emerging trends in financial markets.