SoFi Technologies, Inc. (SOFI - Get Rating) is a financial services company that operates through three segments: Lending, Technology Platform, and Financial Services. It runs Galileo, a technology platform that offers services to financial and non-financial institutions, and Apex, a technology-enabled platform that provides investment custody and clearing brokerage services.

Last month, President Biden announced a student loan forgiveness program for low- to middle-income borrowers hit by the pandemic-induced economic crisis. The program intends to cancel up to $20,000 in student loan debt for qualifying borrowers.

Along with the student loan forgiveness plan, the government is expected to end the loan repayment pause that has been in effect for more than two years. This is expected to be beneficial for SOFI, as it will result in several borrowers rushing to refinance their student loans.

Despite the buzz around the stock, investors have been worried about the company’s disappointing financials. Shares of SOFI have declined 67.9% year-to-date and 71.3% over the past year to close the last trading session at $5.08.

Although the company’s adjusted net revenue of $356 million in the previous quarter exceeded its quarterly guidance by 8% at the low end and 5% at the high end, and its adjusted EBITDA of $20 million exceeded its quarterly guidance of $5 million to $15 million, it is still making losses. Moreover, analysts expect its EPS to remain negative in fiscal 2022 and 2023.

As the Fed aggressively raises the benchmark interest rate, the stock market is expected to remain under pressure. The broad-based tech sell-off due to the rising interest rates has led to one of SOFI’s largest institutional investors, SoftBank, selling its shares.

Here’s what could influence SOFI’s performance in the upcoming months:

Deteriorating Financials

SOFI’s non-interest expense increased 15.5% year-over-year to $458.24 million for the second quarter that ended June 30, 2022. The company’s net loss and loss per share came in at $95.84 million and $0.12, respectively.

Its total liabilities stood at $7.16 billion at the end of the second quarter, compared to $4.48 billion at the end of the fiscal year ended December 31, 2021.

Mixed Analyst Estimates

Analysts expect SOFI’s EPS for fiscal 2022 and 2023 to remain negative. Its revenue for fiscal 2022 and 2023 is expected to increase 48.6% and 39.9% year-over-year to $1.50 billion and $2.10 billion.

Weak Profitability

SOFI’s trailing-12-month ROCE is negative compared to the 11.51% industry average. Likewise, its trailing-12-month net income margin is negative compared to the 27.86% industry average. Also, its trailing-12-month asset turnover ratio is 0.12% compared to the 0.20% industry average.

POWR Ratings Reflect Bleak Prospects

SOFI has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SOFI has an F grade for Quality, in sync with its weak profitability. It has an F grade for Stability, consistent with its 1.93 beta.

SOFI has ranked #103 of 104 stocks in the F-rated Financial Services (Enterprise) industry. Click here to access SOFI’s ratings for Growth, Value, Momentum, and Sentiment.

Bottom Line

SOFI is trading below its 50-day and 200-day moving averages of $6.47 and $8.73, indicating a downtrend. Although the company delivered better-than-guided adjusted revenue and EBITDA, it is still reporting losses. SOFI will gain from refinancing student loans, but analysts look bearish on its earnings growth prospects.

Given its disappointing financials, weak profitability, and low stability, it could be wise to avoid the stock.

How Does SoFi Technologies, Inc. (SOFI) Stack Up Against Its Peers?

SOFI has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Financial Services (Enterprise) stocks with an A (Strong Buy) or B (Buy) rating, such as Forrester Research, Inc. (FORR - Get Rating), Everi Holdings Inc. (EVRI - Get Rating), and South Plains Financial, Inc. (SPFI - Get Rating).

SOFI shares were trading at $5.18 per share on Wednesday morning, up $0.10 (+1.97%). Year-to-date, SOFI has declined -67.24%, versus a -21.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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