Sofi Stock is still a bearish buy near current levels

Sofi Technologies (NASDAQ:SOFI) has been incredibly volatile over the past few months. In May, SOFI stock hit a low along with most other high growth stocks. It was then that the group’s bear market ended.

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Shortly after, stocks erupted, hitting almost $ 25 and climbing for an instant over 75% from the low. This peak came less than a month after Sofi’s fall, so it didn’t take too long for stocks to dip back towards $ 15.

At the time, I was a close to $ 15 long and the bulls had a nice rally to $ 17.50 before profits. However, this report did not go so well. Here’s what you need to know about SOFI stocks going forward.

SOFI stock and the boom in earnings

SOFI stock lost more than 10% on August 13 in response to second quarter results. Shares fell 21.25% overall in three consecutive days lower after results. While SOFI eventually bottomed out near $ 13.50 and has since recovered $ 15, it was disheartening to see the stock react to earnings the way it did.

For the quarter, profits exceeded expectations while revenue of $ 231.2 million was above estimate by 6%. However, the forecast for the next quarter was weak compared to analysts’ expectations.

That said, there are a few points to emphasize here. First, there were only two analysts with official estimates for the third quarter. It’s not great to miss expectations, but there is a big difference between several dozen registered analysts and just two. And sSecond, management still reiterated its annual outlook of $ 980 million. So dropping that name to over $ 2 billion in market cap for an alleged disappointment in a quarter seems unwarranted.

This is probably the reason why we have seen a rebound in the SOFI share price. Now it will be essential for management to deliver in the future.

Breaking down Sofi technologies

Whether or not the post-profit liquidation was an overreaction does not matter at this point in the game. The reality is that SOFI stock represents a huge opportunity – if the company capitalizes on its long term goals.

If not, one could argue that there is a limited downside due to the low share price. Still, while this is true to some extent, it’s not like Sofi has a low valuation. The shares are trading at about 12 times this year’s earnings forecast. Meanwhile, analysts expect the company to lose 52 cents a share this year and 7 cents next year, according to Yahoo! Finance.

If we rate Sofi as a bank – like Bank of America (NYSE:BAC) – It is quite expensive. But if we like it as a fintech – like Pay Pal (NASDAQ:PYPL) – it is cheap. So it will all come down to execution.

Estimates predict revenue growth of 50% to $ 1.45 billion next year. We’re not focusing on that, however. Instead, management is focused on the long term. They expect income of nearly $ 3.7 billion by 2025. They also see Adjusted EBITDA reaching nearly $ 1.2 billion by 2025.

Where does the growth come from?

Currently, more than 80% of the company’s turnover comes from credit (i.e. from the bank). The remaining 2% and 17% come from its financial services unit and its technology platform unit, respectively. In 2025, management expects these revenue segments to represent 43%, 32% and 25%, respectively.

In other words, Sofi has huge expectations to drive the growth of its financial services and technology platform businesses. In the midst of this effort, they believe it will lead to higher Adjusted EBITDA results, improved margins, and lower reliability of the business vis-à-vis banking services.

If so – and that’s a big if – SOFI stock is cheap right now.

Trade SOFI shares

I consider this to be a high risk stock, as there is a huge possibility that Sofi Technologies will simply not live up to these expectations. Or, in other words, there’s a chance it doesn’t even come close to management’s multi-year outlook.

But if so, SOFI stocks could tear themselves apart.

For buyers looking for a more speculative position, it helps that the stock has fallen significantly. From there, I want to see SOFI hitting the $ 14.70 mark. It has been a line in the sand and the Bulls must be relieved to see it again above that level. However, stocks tend to go down. If he breaks $ 14.70, the bulls must be open to the idea that he could retest August low.

Above $ 16.15 and SOFI stocks could test up to the 21 week moving average and the $ 17.50 level. If he clears those measurements, $ 20 could be on the bridge.

At the date of publication, Bret Kenwell held a long position in SOFI. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.

Bret Kenwell is the director and author of Futures Blue Chips and is on Twitter @BretKenwell.


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