SOFI Stock Price Forecast August 2021 – Time to Buy SOFI?

Social Finance or SoFi went public earlier this year through a reverse merger with Social Capital Hedosophia Holdings IV (IPOE). The SPAC (special purpose acquisition company) was sponsored by Chamath Palihapitiya who has also taken Virgin Galactic, OpenDoor, and Clover Health public.

SOFI stock was trading sharply lower in US premarket price action today. The stock’s price action is in stark contrast to what we’ve seen with other companies that went public through a merger with Palihapitiya-sponsored SPAC. Clover Health and OpenDoor released their second-quarter earnings this week only and surged higher after posting better than expected results.

Virgin Galactic posted its second-quarter earnings in the first week of August and the stock rose after it announced the reopening of ticket sales at a higher price. What’s the forecast for SOFI and should you buy it now?

SOFI recent developments

SOFI released its second-quarter earnings yesterday after the US markets closed. The fintech company reported revenues of $231.7 million in the quarter which was over twice what it did in the corresponding quarter in 2020. It reported a 113% rise in members and had 2.6 million members at the end of June. The company has been reporting acceleration in membership growth numbers for the last eight quarters which looks encouraging.

While a lot of growth companies are witnessing a growth slowdown, SOFI continues to grow at a fast pace. Anthony Noto, CEO of SoFi, termed the second quarter as full of milestones. “We exceeded our financial expectations, delivering record adjusted quarterly net revenue and our fourth consecutive quarter of positive adjusted EBITDA. We drove our 8th straight quarter of accelerating member growth, with even faster growth in cross-buying from existing members, increased our Galileo account base to nearly 79 million,” said Noto in his prepared remarks.

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Earnings

SOFI posted an adjusted EBITDA of $11.2 million in the quarter as compared to an EBITDA loss of $23.7 million in the corresponding period in 2020. However, it posted a GAAP net loss of $165.3 million in the quarter. Commenting on the massive loss, the company said “We remeasured our valuation allowance during 2020 as a result of the deferred tax liabilities recognized in connection with our acquisition of Galileo, which decreased the valuation allowance by $99.8 million.”

It added, “The absence of that tax benefit, together with significant non-cash stock-based compensation expenses and fair value changes in warrants primarily related to the fair market value of SoFi stock, were the largest contributors to the current period net loss.”

SOFI guidance

SOFI said that it expects to post revenues between $245-$255 million in the third quarter. However, its guidance on the third quarter adjusted EBITDA spooked markets. At the lower end of the guidance, it expects to post an EBITDA loss of $7 million while the upper end calls for an EBITDA of $3 million. However, the company maintained the full-year revenue guidance at $980 million and EBITDA guidance at $27 million.

Forecast

All three analysts covering SOFI have a buy rating and its median target price of $26.50 implies an upside of 51.7% over current prices. Its highest target price is a premium of 72% while its lowest target price of $23 is also 31.7% higher than the current prices.

Jim Cramer, the host of the Mad Money show on CNBC is also bullish on the stock. “Frankly, I don’t understand why this stock is where it is. I think [CEO] Anthony Noto is doing a terrific job. I think at $15, you buy the stock. I think you just go buy it,” said Cramer earlier this month.

SOFI stock long term forecast

The company’s top line is growing at a fast pace and it expects its revenues to increase 43% annually between 2020 and 2025. The company expects its revenues to rise to $3.67 billion by 2025 and is forecasting EBITDA margins at 32% that year. A possible bank charter will mean further upside for these estimates. Also, SOFI might diversify into new businesses. Recently, there was a spike in the stock on rumors that it might get into the BNPL (buy-now-pay-later) market.

Valuation

SOFI is expected to post revenues of $1.49 billion in 2022, 52% higher than 2021. The stock has a market cap of around $13.8 billion. This gives us 2022 price-to-sales multiple of 9.3x. The valuations look reasonable looking at the positive outlook for fintech companies.

Rosenblatt analyst Sean Horgan is very optimistic on fintech stocks and said “The incumbent legacy banks face a challenging road ahead as a new wave of digitally native and mobile-first banks rush into the market.” Commenting on SoFi he said, “But for now, challenger banks face a ‘jump ball’ opportunity to seize market share from the old guard … and SOFI is well-positioned to capture a significant amount of the value hanging in the balance.”

Technical analysis

SOFI stock trades below the 50-day SMA (simple moving average) and looks set to fall below the 30-day SMA also today looking at the carnage in the premarkets.

That said, the dip in the stock looks like a good buying opportunity. The fintech industry is among the most promising investing themes for the next decade and SOFI looks a good play to ride the fintech wave given its diversified operations and a strong management team.

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