Why SOFI Stock Is Not Out of the Woods Yet

Stock Market

Investors of neo-banking firm SoFi Technologies (NASDAQ:SOFI) have suffered for a long time. They deserve a break, and it looks like 2023 will be a turnaround year for SOFI stock. Sure, there are still risks involved with SoFi Technologies, but the reward-to-risk profile is looking better today than it did just a few months ago.

Let’s be honest: 2022 was an awful year for financial and technology businesses. As a fintech company, SoFi Technologies straddles both of those market sectors. So, investors avoided SoFi like the plague.

It’s possible, though, that they overreacted and are now coming to their senses. SoFi Technologies had a make-or-break moment not long ago, and fortunately, SoFi’s quarterly report was more “make” than “break.”

SOFI SoFi Technologies $6.92 

As Inflation Eases, SoFi Technologies Can Prosper in 2023

When inflation is elevated, as it certainly was last year, business activity tends to slow down. That’s bad news for SoFi Technologies, which struggled as consumer prices rose in 2022.

The good news, though, is that the Consumer Price Index topped out at 9.1% in July of 2022. And, the CPI isn’t the only way to measure inflation. The Federal Reserve’s preferred inflation gauge isn’t the CPI, but rather the personal consumption expenditures (PCE) index.

As it turns out, the PCE index peaked at around 7% in June and fell to 5% in December. Thus, the Federal Reserve may be motivated to ease up on interest rate hikes. This, in turn, should benefit SoFi Technologies, as the company generates revenue from lending and lower interest rates encourage borrowing and lending activity.

Why Did SOFI Stock Gain 12% in a Single Day?

On Jan. 30, 2022, the Nasdaq declined nearly 2% and the S&P 500 slid 1.3%. Yet, SOFI stock rallied 12.46%, finishing the day at $6.68.

What prompted this astounding share-price run-up? It wasn’t just the aforementioned good news about the relatively low PCE index reading. The main catalyst, without a doubt, was SoFi Technologies’ fourth-quarter 2022 financial results.

At long last, SOFI stock investors had some terrific data points to celebrate. Amazingly, SoFi Technologies reported record revenue in all three of the company’s business segments: Lending, Technology Platform and Financial Services.

SoFi’s Q4 2022 total GAAP-measured net revenue rose 60% year-over-year to $456.7 million, beating Wall Street’s estimate of $423 million. On the other hand, SoFi Technologies’ $40 million GAAP net earnings loss might seem disappointing at first glance.

However, that result is a lot better than SoFi’s $111 million net loss from the year-earlier period. Moreover, SoFi Technologies’ Q4 2022 net loss of 5 cents per share easily beat the analyst consensus estimate of a 15 cents-per-share net loss.

The Bull Case for SoFi Technologies Is Undeniable

The bears and short-sellers can’t deny it: SoFi Technologies knocked it out of the park with the company’s latest quarterly financial data release. It’s also encouraging to see a crucial but sometimes overlooked inflation gauge, the PCE index, subsiding.

All in all, the bullish thesis for SOFI stock is only getting stronger. Don’t be surprised if the SoFi Technologies share price pierces $10 sometime in 2023, and then heads higher from there.

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.

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