In my last article on SoFi Technologies (NASDAQ:SOFI) stock, I discussed renewed bullishness following the release of the fintech/neobank’s latest fiscal results on Oct. 30. So far, a round of post-earnings bullishness has taken shape, albeit moderately.
On Oct. 31, the first trading day after Q3 results hit the street, shares rallied by around 8.79%. While a solid jump, especially during this earnings season (where stocks have tanked on negative results, yet have barely budged on positive results), some might this to be a bit of a disappointment.
SOFI has a history of making even larger post-earnings price moves, such as the stock’s big jump after SoFi’s last quarterly earnings release in July. Still, there is a silver lining.
If you’ve been looking to enter/add to an existing position, this reaction is quite advantageous. Here’s why.
SOFI Stock Earnings Reaction
In its Oct. 30 earnings release, SoFi Technologies reported another quarter of solid revenue growth (27%). SoFi’s top line figure also came in ahead of expectations. Although GAAP losses were wider-than-expected, on an adjusted earnings basis, SoFi’s bottom line topped the sell-side’s forecasts.
Alongside these financials, SoFi also reported solidly in terms of other key performance indicators, like the number of members on its platform. Now 6.9 million strong, membership increased by 717,000, and was up 47% year-over-year. Add in CEO Anthony Noto’s reiteration of the company’s expectation of hitting positive GAAP earnings during this quarter, and it’s clear why the market reacted only slightly favorably to these results.
Things continue to move in the right direction, but there’s plenty that’s leading some investors to maintain a “show me” stance about SOFI stock. Strong growth notwithstanding, in the current market environment revenue growth alone doesn’t cut it. This fintech needs to hit profitability, and fast.
Despite Noto’s reiteration of next quarter’s earnings guidance, it will likely take the actual reporting of positive earnings to shift sentiment for shares. While frustrating for those approaching SOFI as a near-term trade, this is fine for more patient investors.
Irrespective of Near-Term Performance, Time is on Your Side
With quarterly earnings out of the way, it’s unclear as to how SOFI stock will perform between now, and the next quarterly earnings release next January. There are some factors that may help give shares a further modest boost.
For instance, another big takeaway from SoFi’s aforementioned earnings release was the strong performance of the company’s non-lending segments, such as its Galileo fintech unit.
Morgan Stanley’s analyst team cited this as a reason for its post-earnings upgrade of SOFI. Greater appreciation of Galileo’s performance may help to shake off the perception among some that SoFi is solely a bank stock.
This suggests greater upside potential when the company becomes profitable (as non-bank fintechs trade at richer multiples than bank stocks). Then again, while not for certain, it’s also possible that the market quickly digests the latest results, and shares simply move in tandem with the broad market.
Again though, this is not a reason to be discouraged. Instead, think of it as time being on your side. SoFi could resume trading sideways over the next three months, providing the opportunity to scoop up additional exposure at what is a more-than-reasonable price (between $7.50 and $8 per share).
Bottom Line: You Haven’t Missed the Boat
Why do I believe current price levels are more than reasonable? As I’ve noted before, while SoFi may appear pricey compared to its present results, in hindsight today’s prices may appear to be a bargain.
Assuming SoFi hits GAAP profitability this quarter, incremental GAAP earnings growth in subsequent quarters could be massive, based upon this firm’s level of operating leverage. Don’t forget, either, that Noto is setting his sights high.
Rather than aiming to scale up SoFi to the size of a mid-sized bank, the CEO is looking to turn SoFi into a financial institution on par with leading U.S. banks like Bank of America (NYSE:BAC).
With the latest results strengthening the bull case, while shares move only moderately higher, the opportunity to grab a long-term position in SOFI stock hasn’t gone away.
SOFI stock earns a B rating in Portfolio Grader.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place