After sinking to a low stock price of $4.50 at the start of 2023, SoFi Technologies (NASDAQ:SOFI) has made a decent comeback at $9.52, a respectable jump of 111%. It therefore has outpaced the S&P 500 that has spiked 20% this year through the start of December 2023. Nonetheless, analysts question whether SoFi’s stock is on target to keep rising while facing difficulty turning a profit.
SoFi, based in San Francisco, operates as an online financial services company, describing itself as “a member-centric, one-stop shop for digital financial services that helps members borrow, save, spend, invest and protect their money.”
That fluctuating stock price happened despite improving results in the third quarter, when it had record revenue of $537 million, up 27% year over year from $423 million. CEO Anthony Noto noted that “Our record number of members and product additions, along with improving operating efficiency, reflect the benefits of our broad product suite.”
SoFi offers student loans, personal loans from $5,000 to $100,000, home improvement loans, mortgages, as well as family planning loans. It issues its own credit card with no annual fee and has an active rewards program. It’s trying to be an online, full-service JPMorgan Chase (NYSE:JPM).
So, if it was making more loans, operating efficiently, and attracting new members, why has its stock price not reached double digits, despite the spurt?
SOFI Stock Stuck in Single-Digit Range
Stated simply, SoFi Technologies has never turned a profit. Even when its revenue was rising in Q3, it still suffered a net loss of $266.68 million, greater than the $74.21 million loss the previous year.
About its outstanding third-quarter 2023 results, Michael Perito, a New York-based managing director and senior research analyst at Keefe, Bruyette & Woods, said that while results were “better than the Street expected, the quarter still had several things for both bulls and bears to highlight.” Despite SoFi indicating that it remains on track to sustain its earnings growth in the fourth quarter, Perito wasn’t convinced.
The analyst continues to question whether SoFi can “maintain growth without depleting capital.” His rating was “market perform,” as he noted that the SOFI stock price has hovered between $5 and $10. He called SoFi a “high-growth story” but cautioned that investors faced a “unique set of risks” at this early stage of growth.
He also had questions about its $15 million roster of personal loans. While SoFi maintains that each deal is different, Perito noted “we continue to be a bit cautious on the secondary market for personal loans.”
Perito characterized his target price of $7.50 for SoFi Technologies as revolving around “uncertainty around the bank’s long-term profitability, particularly around its cross-selling strategy.” He considers that strategy too costly, without providing enough revenue.
He also noted that if its acquisition strategy doesn’t come to fruition and meet its goals, “it could increase the platform’s need for external capital or debt to fund its operations.”
In fact, he observed that its current limited profitability “could hurt the company’s ability to generate capital in the future” if it fails to increase market share. In short, there’s not enough profit and SoFi faces several risks.
The Bottom Line
Perito paints a mixed portrait of what is going on with SoFi and whether to invest in it. What he sees, in essence, is SoFi making strides to turn things around and increase fourth-quarter profitability by improving efficiencies and increasing margins. Nonetheless, doubts linger of whether it can achieve these gains when it is still weighed down by intense competition and credit losses. Hence, his neutral rating of “market perform” remains.
On the date of publication, Gary Stern 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.