This is my first time writing about SoFi (NASDAQ:SOFI) since the company went public on June 1, 2021. I believed that SOFI stock would perform well once the reverse merger was completed.
At the time I wrote the following:
Once the merger is complete and IPOE stock becomes SOFI stock, it seems likely that the shares will go up. SoFi is a fintech company that isn’t waiting for its public trading debut to become disruptive to the traditional financial sector. And the company is forecasting what appears to be measured and achievable goals.
However, I didn’t count on the stock hitting not just one, but two, toll gates that allowed a significant percentage of shareholders to exit the lockout period early.
I’m also writing about SoFi just a few days after the company delivered its first earnings report. And while the company continues to show year-over-year revenue growth, it also posted a larger than expected net loss of $165.31 million.
This combination has put a lot of selling pressure on SOFI stock, which is down 17% since the earnings report was released. However, I stand by my contention that SoFi is a long-term buy. Therefore the discounted price should give speculative investors a nice opportunity.
Fundamentals Matter? Who Knew
With a company that has been growing its revenue as impressively as the company has, it’s fair for investors to cast a wary eye at where all that revenue is going. In fairness, the company attributes about $100 million of that net loss in large part to its acquisition of Galileo Financial.
And while it might be easy to look past the net loss And it feeds into the bearish narrative of investors who wonder when, or if, SoFi will ever become profitable? This is where I believe you need to pay attention to another recent acquisition.
As InvestorPlace’s Tezcan Gecgil wrote, SoFi recently acquired Golden Pacific Bancorp (OTCMKTS:GPBI). This will give the company a national bank charter that will allow it to move away from its current practice of using third parties to underwrite its loans. This would be a step toward becoming a profitable company.
Competition Is Increasing
The second issue that investors are reacting to is the company acknowledgement that competition is likely to increase. One reason for that is the company doesn’t have much of a moat. While I agree with this statement, I also agree that SoFi is not easy to classify.
However, that doesn’t mean there’s no opportunity. SoFi is reaching a young demographic which is unbanked for many reasons. And if they can find the ability to handle much of the services of traditional banks through an app on their phone, all the better.
Should You Buy SOFI Stock On the Dip?
On the one hand, I have to chuckle just a little at the “fundamentals matter” crowd. After all, there have been a slew of stocks that continue to be overvalued without a care at all about their fundamental strength.
However, that seems to be the case, and so – as someone who has been firmly on the side of fundamentals – I admit that investors should pay attention to how SoFi is planning on allocating its capital.
SoFi came public via a special purpose acquisition company. However, unlike many SPACs, the company was going public with revenue, albeit it was not profitable.
That was one reason I was bullish on SoFi. But it hasn’t been a smooth ride forward. And the company continues to burn cash. However, if you have a longer time horizon, SOFI stock may be very rewarding. Rosenblatt Securities has reaffirmed its $30 price target.
In the short-term, it looks like SOFI stock is trying to find support around $14.40. So, if you’re looking to take advantage of a buy-the-dip opportunity, this may a good time. However, I’m an investor who looks at the long-term opportunity. That story may require some patience, but with the analyst community not being scared off by the lackluster earnings results, there’s room for some bullish investors.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.
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