Why Risky SOFI Stock Is Still Worth a Long-Term Bet
The only thing that people can agree on when it comes to SoFi Technologies (NASDAQ:SOFI), it seems, is that there will always be disagreement. The top analysts on Wall Street see different trajectories for SOFI stock, so what is a retail investor supposed to do? The answer is: listen to the bull and bear cases for SoFi Technologies and then think about buying a few shares if the bull case prevails.
Some folks will always see the glass as half empty, while others will see the same glass as half full. For example, shrank its net earnings loss by 69% from the year-earlier quarter to the first quarter of 2023. However, a pessimist might be disappointed because SoFi Technologies is still unprofitable.
Of course, you have to be your own analyst and advocate at the end of the day. Maybe, after weighing the bull and bear cases, you’ll agree with me that SOFI stock has its risks but is still worth owning.
Wedbush Issues Leans Bearish on SoFi Technologies
So, let’s start with the bearish argument. Analysts with Wedbush expressed concerns that SoFi Technologies may be “nearing a tipping point” in terms of generating fees from loan applications and sales. If that fee income declines significantly, that would certainly impact SoFi’s top and bottom lines.
Personally, I’m not overly concerned about a sharp decline in SoFi Technologies’ revenue sources. The company’s revenue grew 43% year over year in Q1 2023, and that was during a challenging time for the banking sector.
Per Barron’s, the Wedbush analysts also expect regulators to “increase scrutiny on capital ratios and stress testing” in the wake of recent bank failures. Yet, in my opinion, SoFi Technologies doesn’t belong in the same category as failed banks like SVB Financial Group (OTCMKTS:SIVBQ) subsidiary Silicon Valley Bank. SoFi Technologies is highly protective of its customers’ deposits. In fact, the company offers up to $2 million worth of Federal Deposit Insurance Corporation (FDIC) insurance per customer account.
Truist Rates SOFI Stock a ‘Buy’
For the aforementioned reasons, the Wedbush analysts downgraded SOFI stock from “neutral” to “underperform.” In contrast, Truist analyst Andrew Jeffrey initiated his coverage of SoFi Technologies with a “buy” rating.
Looking ahead, Jeffrey expects “long-term growth investors” to “embrace SoFi’s robust multiyear organic revenue, earnings before interest, taxes, depreciation, and amortization, free cash flow and free cash flow return on equity outlook.” Of course, an outlook is not a guarantee of success. Still, the point about SoFi Technologies’ optimistic forward guidance is duly noted.
Most importantly, Jeffrey appreciates SoFi Technologies’ customer-facing financial products. These products, he explains, are “designed to allow members to take control of their financial lives.” This is, to a certain extent, what separates SoFi from stodgy traditional banks. Ultimately, the Truist analyst sees SoFi Technologies as “the future of U.S. banking: digital, nimble and always on.”
Consider Your Risk Tolerance With SOFI Stock
SoFi Technologies is thoroughly modern and disruptive. As such, it’s bound to attract some critics and naysayers. That’s to be expected as SoFi seeks to alter the landscape of personal finance in the U.S.
Personally, I’m not too worried about SoFi Technologies losing significant revenue sources. I’m also not overly concerned about regulators suddenly targeting SoFi Technologies. So far, SoFi has proven itself a secure place to park one’s capital.
There’s no guarantee that the bull case for SOFI stock will be the right one. Be sure to manage your risk if you intend to take a long position in SoFi Technologies. However, feel free to invest if you agree that the company is, indeed, the “future of U.S. banking.”
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
