Once just a finance app, SoFi Technologies (NASDAQ:SOFI) is now a formidable chartered bank challenging traditional financial institutions. Despite skeptics, a mega-bank analyst group spoke positively about this fintech player and its disruptive potential within the financials space. With the end of the student loan repayment pause and a potential halt in interest rate hikes, SOFI stock could benefit from increased lending and borrowing. Still, its fundamentals have continued to lag its growth potential.
Although I have been bullish on SoFi for a while now, denying some short-term headwinds for the stock is impossible. These may continue for some time. However, I still think there’s a chance SoFi can become profitable in the long run and challenge the current model as it exists today.
Let’s dive into some reasons for this pessimistic outlook and what to do with SOFI stock here.
Recent SOFI Insider Sales
SoFi’s shares dipped almost 15% in the past week as investors reacted nervously to executives selling shares in the company. Several recent Form 4 filings from SoFi revealed that various executives, including high-ranking individuals, sold significant portions of their stakes in the fintech and banking company.
On November 2, SoFi’s president Chad Borton sold 152,000 shares at approximately $7.99 each, cutting his stake by almost half to just below 158,000. The next day, chief risk officer Aaron Webster sold 215,299 shares at around $8.08 per share, reducing his stake to 476,221. Lastly, on November 6, chief marketing officer Lauren Stafford Webb sold 135,832 shares at an average price of $7.58 per share, reducing her stake to 257,608.
These insider transactions are notable in size and recency, but investors may want to remind themselves that such transactions can occur for many reasons. Indeed, the signals being sent to the market aren’t positive right now, and in combination with poor numbers, this is yet another reason for market participants to unload shares.
SoFi Remains Unprofitable
Insiders’ significant, unplanned stock sales can worry investors, impacting SoFi’s stock. However, insider sales are often overemphasized. Notably, the CEO and CFO recently purchased SoFi shares, which some saw as a positive sign. Yet, understanding executives’ personal decisions is challenging.
Investors should prioritize assessing SoFi’s business performance, which demonstrated robust growth last quarter. Total net revenue increased to $537 million from $424 million in the same period in 2022, and online bank deposits surged by $2.9 billion in the quarter.
SoFi faced profit challenges, posting a $267 million net loss in the quarter and a $349 million loss for the year. An important metric, book value per share, hasn’t grown since going public, slightly decreasing. Investors should closely monitor SoFi’s operations to assess its potential for long-term growth.
Why This is a Short-Term Problem
Legendary investor Peter Lynch once noted, “Insiders might sell for various reasons, but they buy only if they expect the price to rise.” Despite the market’s typical concern about insider selling, SoFi’s shares surged about 17% following a strong Q3 report, and they are still up over 50% year-to-date, even after a recent pullback.
Executives, including the chief risk officer, sold shares, possibly to diversify portfolios. These sales echo past transactions in June after executing vested stock options. Long-term investors shouldn’t overreact, as insiders sell for various reasons. However, this is certainly one of those longer-term plays investors may want to be patient with, at least for now.
On the date of publication, Chris MacDonald 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.
