The story surrounding SoFi Technologies (NASDAQ:SOFI) has been a negative one for much of 2024, with shares dropping 26% year-to-date.
Yet, there’s a silver lining. SoFi’s Q2 earnings report, released at the end of July, provided a much-needed boost of optimism. The company beat Wall Street expectations in both earnings and revenue, and raised its guidance for Q3 and the full year of 2024, signaling confidence in its ability to navigate challenges and potentially turn things around.
Digging deeper, SoFi’s personal loans portfolio hit a new high of $4.2 billion, marking a 12% year-over-year growth. Additionally, its financial services revenue soared by 80% over the same period, highlighting SoFi’s success in diversifying its offerings.
With the financials looking up, should investors jump on the SoFi train? JR Research, a 5-star investor rated in the top 2% of TipRanks’ stock pros, remains cautious.
“SOFI’s adjusted forward earnings multiple of more than 45x suggests a steep growth premium has likely been reflected… SOFI has also failed to gain sufficient momentum to break decisively above its critical $8 resistance zone,” JR argues.
Though the growth in financial services is a promising sign, JR points out that the lending segment still comprises almost 70% of the company’s contribution profits. For the stock to gain traction, the investor believes SoFi will need to demonstrate stronger revenue growth in other areas.
“Unless the company can project an accelerated growth cadence or profitability inflection in its faster-growing segments (tech and financial services), a further valuation re-rating could be challenging,” JR opined.
Given these factors, JR advises investors to remain on the sidelines, maintaining a Hold (i.e. Neutral) rating on SoFi stock. (To watch JR Research’s track record, click here)
Wall Street analysts seem to echo this sentiment. Out of 15 ratings, 7 are Holds, 5 are Buys, and 3 are Sells, leading to a consensus Hold rating. However, SoFi’s 12-month average price target is $8.27, suggesting about 14% upside potential in the year ahead. (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.
