SoFi Stock Up 13% – Time to Buy SOFI Stock?

The price of SoFi stock surged nearly 14% yesterday following Morgan Stanley’s decision to initiate coverage of the stock with a buy rating and a price target of $25 for the financial technology company.

According to Betsy Graseck, the analyst in charge of assessing SoFi’s fundamentals and prospects on behalf of the American investment bank, the company is “the fastest growth story in consumer finance” and enjoys a “leg up” from its multiple rivals in the space.

Graseck referred to SoFi’s student loan refinancing offering as one of its most powerful drivers in a scenario where the government will likely let its  deferment program expire.

As a result, loan volumes from this segment should experience a positive uptick while the analyst also mentioned the possibility of SoFi getting an official bank charter as another growth opportunity for the company moving forward.

Investors appear to have embraced Graseck’s upbeat tone and bullish price target with a fair degree of excitement as they pushed the stock almost 14% higher at $18.4 during the session. Can the uptrend continue in the following days for SoFi stock?

In this article, I’ll take a closer look at the price action and fundamentals of the company to outline plausible scenarios for the future.

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SoFi Stock – Technical Analysis

Yesterday’s jump was quite encouraging from a technical analysis standpoint as the stock finished the day above its 27 September high while it broke above its short-term and long-term moving averages.

Trading volumes were twice as high as the 10-day average and the fact that the stock finished near its intraday high instills a significant bullish tone to the price action.

Momentum oscillators at the moment are standing in bullish territory with the Relative Strength Index (RSI) hovering near overbought levels at 65 upon bouncing from the 50 threshold only a few days ago. Moreover, the MACD remains in positive territory and has successfully avoided a cross below the signal line on the back of yesterday’s strong uptick.

Moving forward, unless the broad-market weakness we saw last month spills over to October, SoFi stock should not find it too hard to tag its $21 trend line resistance in the following weeks.

SoFi Stock – Fundamental Analysis

Morgan Stanley is joining the chorus of analysts that have rated SoFi stock positively recently along with Jefferies Financial Group and Mizuho. According to John Hecht from Jefferies, the company could see its stock price surging to $25 – the same level predicted by MS – as its business model seems poised to generate “significant user growth, product adoption, and margin expansion”.

Hecht went on to say that the company should expand its revenues at an average rate of 46% per year at least until 2025. The analyst also cited the possibility of securing a national bank charter as a potentially positive catalyst for the stock. These opportunities don’t seem to be fully priced into the stock, Hecht believes.

Data from MarketBeat shows that 5 out 6 analysts are currently rating the stock a buy while the consensus 12-month price target for SoFi stock is standing at $24.92 per share or 35.5% higher than the current price.

From a fundamental standpoint, if we take Hecht’s revenue growth forecast for granted, SoFi could see its revenues jump to around $1.65 billion by the end of 2025. Using the company’s current market capitalization of $14.6 billion, that would give us a forward price-to-sales ratio of around 9 – quite high even in this optimistic scenario.

Meanwhile, using data from the company’s latest quarterly report, each of SoFi’s 2.56 million users is being assigned an equity value of $5,703.

At this current level, it would take the company a significant effort to monetize its user base to a point that it can deliver the kind of profitability that investors are probably expecting. For example, producing a 12% return on equity per user at that level would require $685 in net earnings per user. In the first semester of the year, the company produced only $177 in revenues – not earnings – per member (an annualized run-rate of $354).

Considering this fairly distant path to profitability, SoFi stock seems overvalued despite its impressive historical and forecasted growth. Moreover, even though its business model has been thoroughly conceived, its competitive moat is quite thin as other companies in the space offer a similar value proposition.

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