After initially surging after earnings, the SoFi Technologies (NASDAQ:SOFI) came to a screeching halt not too long after the earnings release late last month. Less stellar performance has continued for shares in the fintech firm. This may be having you wondering whether there are some major changes to the SOFI stock outlook.
My view? I’ll agree that there is some merit to the more downbeat argument made by a sell-side analyst in a widely publicized post-earnings downgrade.
I’ll also agree that some remarks made by management on the latest earnings call do suggest some uncertainty about operating results in the near-term. However, whether these factors alter the long-term bull case for shares is much less clear.
In fact, rather than being warning signs to sell/avoid this stock, the above negative developments could actually help you. Here’s why.
Why the Market has Hopped Back ‘On the Fence’ About SOFI
On Jan. 31, a few days following SoFi’s latest quarterly earnings release, a pair of analysts at Morgan Stanley (Jeffrey Adelson and Ayokunle Fagbemi) issued a downgrade on SOFI stock. The sell-siders lowered their rating from “Equal Weight” to “Underweight,” and lowered their price target from $7 to $6.50 per share.
In their downgrade, Adelson and Fagbemi argued that future growth appears well-priced into shares, especially given the prospect of slowing overall growth during 2024. Although shares were already pulling back after their initial post-earning rally, the stock fell further.
Since the release of this downbeat take on the SOFI stock outlook, shares have sluggishly trying to bounce back. Investors may be taking not just the downgrade to heart, but also remarks made by management on the earnings call about this year being a transitional one for the company. Those same remarks were cited in the Morgan Stanley report.
Taking these developments into account, it makes sense why the latest wave of bullishness for SOFI has quickly faded, and the market has hopped back on the fence.
Putting Recent ‘Doom and Gloom’ in Context
If you based your opinion on the SOFI stock outlook merely on these headlines, you’d think that this digital-first financial services firm is on the verge of going from sixty to zero, in terms of growth and profitability.
Take another look at the financials themselves, however, and perhaps this is not the case. As discussed in SoFi’s latest investor presentation, adjusted net revenue grew 34% year over year last quarter. Adjusted EBITDA during Q4 rose 30% compared to the prior year’s quarter.
SoFi also reported another quarter of strong membership and product growth (44% and 41%, respectively), and achieved GAAP profitability for the first time.
Lending revenue may drop slightly this year, but this could be outweighed by strong growth with SoFi’s tech platform and financial services businesses.
As argued previously, thanks to operating leverage, moderate revenue growth may result in a dramatic profitability growth.
According to sell-side consensus, SoFi’s earnings could surge from a forecasted 7 cents per share this year, to 24 cents per share during 2025. As InvestorPlace’s Dana Blankenhorn recently pointed out, SoFi earnings during 2026 could come in as high as 80 cents per share.
SOFI Stock Outlook: Still Bright, No Reason to Stay Away
Even as this long-term forecast is hardly a certainty, it does cast some doubt on the gloomier forecasts recently disseminated post-earnings about this stock. Until more comes out supporting the bear case, assume that the bull case remains intact.
Growth among SoFi’s non-lending business will pick up the slack for the segment’s expected 2024 slowdown. In the coming years, as the company’s membership base is poised to keep growing. Growth will re-accelerate for the lending segment. Elevated levels of revenue and earnings growth will persist.
While a less-than-stellar performance could carry on in the near-term, over a longer time frame, as this long-term bull case plays out, it may lead to a dramatic increase in the price of SoFi Technologies shares.
Hence, the SOFI stock outlook remains bright. There’s no reason to stay away. Tune out the skeptics, and consider this a fintech growth play a buy.
On the date of publication, Thomas Niel 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.
