SoFi Technologies (NASDAQ:SOFI) is falling today after analysts issued a severe warning regarding its growth prospects. The financial technology standout has enjoyed an excellent two quarters, rising more than 40% over six months. But investment banking firm Keefe, Bruyette & Woods (KBW) is concerned about its future. Specifically, analyst Michael Perito believes that the company has a valuation that is too high to be sustainable, compelling him to downgrade SOFI stock from a “market perform” rating to an “underperform.” He also maintains a bearish price target of $7.50.
SOFI stock hasn’t responded well to the news. As of this writing, it is down 8.5% for the day, and its current trajectory suggests that it has even further to fall. This isn’t unexpected, given the bearish sentiment toward SoFi that has been growing on Wall Street recently. KBW isn’t the only firm that has warned investors to approach it with caution. All this leads to the all-too-important question: Can SoFi recover?
Multiple Downgrades for SOFI Stock
Just yesterday, SOFI stock rose after the company reported a strong earnings beat for the year’s second quarter. But even as shares surged by 20%, analysts weren’t convinced that the company is on the path to success. Morgan Stanley’s Jeffrey Adelson issued a negative take, citing execution risks and high valuation for his “underweight” rating and bearish $7 price target. This is similar to what Perito issued in a recent note. In his words:
“This appears to be one of the highest valuations for any balance sheet financial in the KBW coverage universe and could be difficult to sustain now that short interest likely has somewhat normalized. We believe valuation has overshot the fundamental earnings outlook. [Profitability] will be modest at best in 2024″ with return on equity in the low single digits.”
The trend of analysts issuing negative outlooks for SOFI stock has been a recurring theme on Wall Street recently. Timothy Chiodo of Credit Suisse maintains a “hold” and “underweight” rating. While he recently raised his price target from $7.50 to $9, that is still lower than the current SoFi share price of $10.52. And although Bank of America Securities’ Mihir Bhatia maintains a bullish price target of $11.50, he still reiterates a “hold” rating as well. SOFI stock currently boasts a hold consensus among 17 Wall Street analysts, according to TipRanks.
Can the Stock Rally?
Despite the declining analyst sentiment, investors may have cause for optimism regarding SOFI stock. In June 2023, the Supreme Court struck down a White House proposal that would have provided further debt relief to student loan recipients. As InvestorPlace assistant news writer Eddie Pan reports, that type of positive catalyst stood to benefit SOFI stock, as more loan repayments mean more business for the fintech company. The fact that SOFI stock has surged more than 27% since the Supreme Court handed down this ruling suggests that this thesis is correct.
It should also be noted that not all experts are so bearish on SoFi’s growth prospects. InvestorPlace‘s Louis Navellier recently refuted Adelson’s argument, urging investors to consider other perspectives before siding with the bear case. “As its long-term prospects remain promising, keep SOFI stock on your watchlist, as a possible buy on weakness,” he advised. If macro headwinds continue shifting in the company’s favor, SoFi could indeed recover and rise, as Navellier predicts.
On the date of publication, Samuel O’Brient did not hold (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.
