Since going public in June 2021, SoFi Technologies (NASDAQ:SOFI) hasn’t met investor expectations. Despite a 59% drop from its IPO price, it rebounded in 2023, surging 98%. Before buying, it’s crucial to consider the pros and cons of this fintech stock.
Moreover, SOFI has experienced a rollercoaster ride. Despite facing challenges due to the extended loan payment moratorium, the company’s performance, not politics, should shape investment decisions. Here’s why a bullish outlook on SOFI stock makes sense.
Why Owning SOFI is a Good Move
SoFi’s recent performance is impressive, with Q2 revenue surging 37% year over year (YOY) to $498 million. Also, its customer base grew by 44% compared to Q2 2022. Despite economic uncertainties, management raised full-year guidance, anticipating over $2 billion in adjusted revenue at the midpoint.
As government-backed student loan payments resume, investors are hopeful for a boost to SoFi’s business, originally aimed at making college more affordable. While student loan refinancing faced challenges, it’s expected to rebound, potentially increasing revenue.
Further, amid solvency concerns at some banks in 2023, SoFi emerged as a safe haven. Deposits grew from $7.3 billion to $12.7 billion by June 30. Also, increased consumer trust and expanded FDIC insurance likely contributed to this growth.
Growing deposits offer an advantage as they are generally low-cost for the bank and can serve as a funding source to enhance SoFi’s net interest margin in the future.
Wait for October 30
SoFi Technologies is having a strong year, but the last quarter is especially crucial. The Q3 earnings results on Oct. 30 will provide insight into its sustainability amid expansionary efforts.
SoFi, traditionally a student loan financier, became a bank last year. CEO Anthony Noto notes they are taking market share from big banks. In fact, the bank had over $2 billion in deposits each quarter since gaining the banking license, with plans to continue this trend.
While the company shows vitality this year, recent declines in SOFI stock of nearly 14% in the past month have raised concerns. The upcoming Q3 results could help restore confidence. SoFi is taking steps to rejuvenate investor trust, such as making its buy now, pay later (BNPL) service available for small business clients through Galileo Financial Technologies. This move, in partnership with major entities, offers installment financing options to small businesses, providing flexibility and boosting SOFI stock in response.
SoFi and the Biden Administration’s Student Loan Cancellations
Biden’s new student loan debt cancellation covers 53,000 PSLF-eligible borrowers who will get forgiveness after 10 years of payments. An additional 51,000 borrowers on income-based repayment plans will receive debt relief after a payment history recount spanning 20 years.
The administration identified that these borrowers qualified for student loan forgiveness but faced prior administrative errors. Additionally, 22,000 borrowers who are permanently disabled will also benefit.
SoFi has not issued a public statement regarding Biden’s latest plan. But CEO Anthony Noto previously expressed support for debt cancellation for struggling borrowers. In his letter, written during the student loan moratorium, Noto also advocated for resuming payments for financially stable individuals.
Buy and Hold for Now
SoFi’s digital-only approach has thrived in the digital age. But, intense competition makes it challenging to stand out in a market with similar financial offerings.
However, SoFi’s customer base has surged from 1 million to 6.2 million. Yet, its stock performance lags, partly due to bearish sentiment toward fintech in a high-rate environment. Still, rising rates can benefit SoFi, boosting profits. And net interest profits are climbing. The end of the student loan freeze could drive demand for loan refinancing. SoFi’s membership keeps growing, with 584,000 new members in Q2, a 44% YOY increase.
On the date of publication, Chris MacDonald 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.