There Will Be No Soft Landing for SOFI Stock
SoFi Technologies (NASDAQ:SOFI) stock has been a disappointment for investors. From the outset, the neo-banking firm was supposed to disrupt the American financial sector. Yet, that vision hasn’t become a reality in the 2020s. Long-term SOFI stockholders are still struggling to break even.
Tight central bank monetary policy certainly won’t make things easier for SoFi Technologies. Besides, any bullish assumptions based on President Joseph Biden’s student debt relief plan are likely to end in disappointment.
Some folks imagined that SoFi Technologies would give traditional banks a run for their money. They may have invested in hopes of multi-bagger returns. With SoFi offering personal loans, mortgages, brokerage services and more, surely the company would take significant market share from conventional lenders. Right?
That narrative hasn’t necessarily played out as some investors had hoped it would. Many of America’s lending institutions are struggling in 2022, and the hawkish-leaning Federal Reserve certainly isn’t helping SoFi Technologies.
Moreover, investors shouldn’t count on the current administration’s student loan policies to save the day for SoFi.
| SOFI | SoFi Technologies | $6.00 |
Student Loan Pause Didn’t Help SOFI Stock
SOFI stock already went through its hype phase back in late 2021, when it topped out near $23. Lately, it has floundered at around $6. The bulls had better hope it doesn’t fall below $5 and enter into what some people would call penny stock territory.
While SoFi Technologies does offer mortgages and other types of loans, let’s not kid ourselves. SoFi’s bread and butter has been student loans, and the company will likely continue to depend on this type of loan as a major revenue source.
SoFi’s student loan revenue wasn’t enough to make the company profitable in its most recently reported quarter. Nevertheless, a proclamation from the White House kept some investors hopeful.
As you may be aware, the Biden administration canceled $10,000 to $20,000 of student loan debt per borrower, while extending the pause on student loan debt repayments “a final time through December 31, 2022, with payments resuming in January 2023.”
The markets are efficient and forward-looking. All of this has been baked into the SOFI stock price. Yet, it hasn’t been enough to get the share price back to $8 or $10, not to mention last year’s peak price.
Fed Policy Is an Obstacle for SoFi Technologies
The seemingly huge student loan pause announcement was supposed to be a significant catalyst for SoFi, yet it failed to move the needle. Meanwhile, the company will have to deal with the same problems that big banks are facing – namely, aggressively Federal Reserve monetary policy.
Big banks will at least have deep capital reserves to help them withstand a Fed-induced economic slowdown. In contrast, SoFi Technologies is likely to struggle as it’s not a huge company. Bear in mind, SoFi’s market capitalization is under $5 billion.
As you are probably aware, the Federal Reserve has raised the federal funds rate multiple times this year. These have been aggressive rate hikes of 50 and even 75 basis points.
First of all, higher interest rates typically mean more downward pressure on growth-stock valuations. So, expect traders to shy away from SOFI stock in this environment of tight monetary policy.
Second, when the Fed repeatedly raises interest rates, this inhibits lending and borrowing activity. This, of course, is problematic for SoFi Technologies. In other words, you’re basically “fighting the Fed” if you invest in SoFi now.
What You Can Do Now
Giant, traditional banks should be able to withstand aggressively hawkish monetary policy. We can’t say the same thing about SoFi Technologies with complete confidence. The company is likely to struggle, and so will its shareholders.
SOFI stock has already lost much of its value since late 2021. There’s no need to stay in the trade if you’re understandably concerned about losing more money. So, feel free to find another fintech business to bet your hard-earned capital on.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
