Down 29% YTD, Can SoFi Stock Double from Here?

With a YTD loss of 29.3%, fintech name SoFi Technologies (SOFI) is among the worst-performing stocks of the year so far, and is underperforming the S&P 500 Index ($SPX) by a wide margin. Previously, SOFI stock rose nearly 116% in 2023 to notch its best-ever year since its 2021 listing.

Like almost all other companies that went public through a special purpose acquisition company (SPAC) merger, SoFi trades well below the merger price of $10. However, it is still the best performer among all of the companies that merged with blank check companies sponsored by “SPAC king” Chamath Palihapitiya. For context, Opendoor (OPEN), Clover Health (CLOV), and Virgin Galactic (SPCE) were the other companies that merged with Palihapitiya’s SPACs, and all three now trade well below $5 per share - which is the threshold for penny stocks. 

And unlike most other former SPACs, which are battling perennial losses, SoFi turned profitable on a GAAP basis in Q4. Can SoFi stock rebound from its rough start to 2024 and double from these levels amid an improving financial performance? Let's take a closer look.

Why Is SoFi Stock Going Down?

The performance of fintech stocks has been quite mixed in 2024. While names like PayPal (PYPL), Affirm (AFRM), and SoFi have underperformed badly, those with exposure to the cryptocurrency space have rallied. Among other factors, uncertainty over the timing of the Fed’s rate cuts has made some investors wary of fintech stocks.

SoFi stock was also hit with a selling spree earlier this month after the company announced a convertible notes issue, the proceeds of which it intends to use for retiring its preferred shares, among others. It was a complex transaction, and SoFi said that it would enter a capped call transaction costing $78.8 million to lower the potential impact of dilution arising from the conversion of these notes. Separately, it also announced an agreement with holders of its 2026 convertible notes to convert $600 million of these into common stock.

Can SoFi Stock Double in 2024?

Last week, Truist Financial Securities analyst Andrew Jeffrey advised buying the dip in SoFi, and his target price of $14 implies the stock nearly doubling from these levels. However, not all analysts share Jeffrey’s optimism, and SoFi has received a consensus rating of “Hold” from the 20 analysts covering the stock.

Only 6 analysts rate SoFi as a “Strong Buy,” while 10 as a “Hold.” One analyst deems the stock as a “Moderate Sell,” while 3 rate it as a “Strong Sell.” SoFi has a mean target price of $9.38 which is 33% higher than Friday’s closing price.

SoFi Stock Forecast is Bullish

While SoFi faces headwinds in its lending portfolio, especially the student loan refinancing business, I believe the stock's forecast is still rosy. Here's why.

• Diversified business model: SoFi now has a diversified business model and has other revenue streams apart from the lending business.
• Strong growth outlook: While SoFi said that it expects its 2024 lending revenues to be between 92%-95% of 2023 revenues, it still forecast that the combined revenues of the Tech Platform and Financial Services segments would rise by at least 50% YoY and be roughly equal to lending revenues. SoFi expects its revenues to grow at a CAGR of 20%-25% between 2023 and 2026, despite the slowdown in lending revenues.
• Access to low-cost funds: SoFi is now increasingly reliant on customer deposits to fuel its loan book, and for the last four quarters, its deposit growth was higher than the loan book growth. As more of its loan originations get covered by low-cost deposits rather than relying on third-party borrowing, SoFi’s margins should improve structurally.
• Sustainable profitability: SoFi seems to have turned around on profitability, and guided for GAAP earnings per share (EPS) to range between $0.55-$0.80 in 2026. It further expects GAAP EPS to rise between 20%-25% post-2026, as well.

Finally, SoFi trades at less than 2x its book value while the next 12-month price-to-sales multiple also looks reasonable, at 2.86x. Looking at the forecasts provided by the company, the 2026 price-to-earnings multiple is below 10x at the top end of its 2026 EPS guidance. The multiple look decent, considering the kind of topline growth that the company expects to deliver.

Investor sentiment toward SoFi have been subdued ever since the convertible note issue - but, as Mizuho, which has a “buy” rating and $12 target price on SoFi, said, “We believe that once investors understand the many positives embedded in the two deals the stock would likely correct upwards.”

I also side with Mizuho, and believe the downside in SoFi stock following the convertible note issue has gone a bit too far, and presents an opportunity to buy this fintech name at a discount. While the stock might not double in 2024, as Truist's target price implies, SoFi should achieve that feat over the next couple of years if the company can deliver on the forecasts that it outlined during the Q4 earnings call.