SoFi Technologies (SOFI) - Get Free Report - Stock Breaks Out After Earnings, Surprising Price Target
SoFi Technologies' stock has been on a remarkable journey recently. The leading online platform for next-generation banking, offering deposits, loans, and credit cards, has bounced back from a significant selloff, surging over 150% since mid-May, with an impressive 20% rally on July 31.
SoFi's Stock Surge and the Outlook
The substantial surge in SoFi's stock price has left many investors wondering if it has outpaced its actual value, potentially leading to another pullback. The question is whether SoFi's stock can continue its upward momentum or if it has already reached its peak for the year 2023.
SoFi's Banking Business Growth
The recent rally in SoFi's stock was fueled by optimism surrounding the elimination of an overhang related to student loan forgiveness. Furthermore, the market has responded positively to the company's better-than-expected business performance.
Before the breakthrough, short sellers targeted SoFi's stock, fearing significant losses if the Supreme Court upheld President Biden's student loan forgiveness program. On June 5, SoFi revealed it had incurred losses exceeding $300 million due to government-enacted student loan forbearance in response to COVID-19 in 2020.
However, on June 30, the Supreme Court decided against Biden's forgiveness plan. Consequently, interest will begin accruing again, and millions of borrowers will need to resume making payments from October 1.
If the plan had been upheld, it could have wiped out up to $20,000 in student loan debt for individuals earning less than $125,000.
The removal of SoFi's student loan overhang shifts the focus back to its core banking business, which has demonstrated remarkable resilience amid economic uncertainty.
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Strong Q2 Results
In the second quarter, SoFi's revenue increased by an impressive 37% year-over-year, reaching $498 million, thanks to a surge in loans and higher interest rates. Although the company is still operating at a loss, it shows improvement, with last quarter's loss shrinking from $0.12 to just $0.06 per share compared to the same period a year ago.
Importantly, SoFi's management remains optimistic about its future prospects. They have revised their full-year revenue forecast to at least $1.97 billion from $1.96 billion and reiterated their expectation to turn a profit in the fourth quarter.
Potential for Continued Rally
SoFi's second-quarter financials are expected to grab the attention of Wall Street analysts. Already, Truist Securities analyst Andrew Jeffrey has raised his price target for SoFi's stock to $16 from $11.
According to technical analysis by Real Money's veteran analyst Bruce Kamich, the charts indicate a bullish sentiment. SOFI trades above the rising 50-day moving average line and the rising 200-day moving average line. The trading volume has been more active since early May, signaling increased investor interest. The On-Balance-Volume (OBV) line shows strength since May, indicating aggressive buying activity. Moreover, the Moving Average Convergence Divergence (MACD) oscillator has turned upwards to a fresh outright buy signal.
Based on Kamich's daily point and figure chart, the price target aligns with Truist's forecast of $16 per share. However, the weekly point and figure chart suggest a much higher price target of $21, representing an 83% increase from July's final closing price.
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SoFi's second-quarter report
SoFi's second-quarter report showcased impressive growth and accomplishments in various aspects of its business.
During the second quarter, SoFi attracted more than 584,000 new members and saw the addition of 847,000 new products, reflecting strong customer acquisition and demand for its offerings.
The company's total deposits experienced significant growth, increasing by $2.7 billion to reach $12.7 billion by the end of the quarter. Notably, 90% of these deposits came from direct-deposit members, indicating a loyal and engaged customer base.
SoFi's personal-loan business recorded remarkable success, with origination volumes jumping by an impressive 51% compared to the previous year, reaching a record-breaking $3.7 billion. Additionally, personal-loan originations were up by 27% sequentially, highlighting consistent growth and demand.
The company attributed this robust performance to its strategic investments in technology, which have enabled the automation and acceleration of the application-to-approval process for qualified borrowers. Continuous testing of risk controls and underwriting models has ensured the maintenance of high credit quality and strong returns for SoFi.
However, student-loan origination volumes were down 1% year-over-year to $395 million. This decrease was partly due to the ongoing uncertainty surrounding federal student loan payments. Nevertheless, SoFi continues to monitor and adapt to the evolving student loan landscape.
Home-loan originations experienced a decline of 27% compared to the previous year, amounting to $243 million. However, the company noted that this decline was offset by a substantial sequential increase, nearly tripling its origination volumes. This boost came as a result of leveraging the technology platform and overall loan capacity from an acquisition made at the beginning of the quarter.
SoFi's technology-platform business has been making strides, with 129 enabled-client accounts as of the second quarter. Moreover, Galileo, a part of this business, secured five new clients during the period, showcasing its appeal and potential for further growth.
Overall, SoFi's second-quarter performance demonstrates its commitment to technological innovation, customer satisfaction, and sustainable growth in various financial services sectors. The company's strategic approach to business expansion and focus on enhancing customer experience positions it well for continued success in the future.
Conclusion
While stocks are subject to fluctuations, the technical analysis suggests that SoFi's stock may experience pullbacks but continue to trend higher in the long run. For investors, these pullbacks could present buying opportunities, especially given the positive outlook for SoFi's banking business and potential for continued growth.
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