What happened
SoFi Technologies (SOFI 1.51%) plunged 14.4%, according to data provided by S&P Global Market Intelligence, after the company announced a secondary offering and a high-profile shareholder announced that it would be selling shares. This comes shortly after the fintech stock impressed with its third-quarter earnings report.
SOFI Total Return Level data by YCharts
So what
SoFi stock went public in April via a special purpose acquisition company (SPAC) merger with a fund that was launched by venture investment firm Social Capital. Social Capital is a high-profile firm, led by former Facebook executive Chamath Palihapitiya.
Palihapitiya announced on Nov. 18 that his fund would be selling 15% of its stake in SoFi so that it could allocate capital to other opportunities (including other fintech businesses). The market never wants to hear that a respected, high-profile investor is reducing their stake.
Image source: Getty Images.
Social Capital wasn't alone. SoFi also announced a secondary offering of 50 million shares on Nov. 15.
These weren't shares being issued by the company, but rather a mass sale by major shareholders including SoftBank, Silver Lake Partners, Qatar Investment Authority, and Red Crow Capital. That represents more than 6% of the company's total outstanding shares. These are big names getting out, and it predictably created some negative sentiment around SoFi.
That was certainly disappointing for investors who had been enjoying a wave of momentum after SoFi reported better-than-expected quarterly results less than a week prior.
Now what
Large investors selling is never a good sign, but it's important to keep this in perspective. Social Capital, for example, is still retaining 85% of its investment in SoFi. By all indications, these investors are taking an opportunity to realize their gains at high valuations. It's not indicative of poor performance on SoFi's part.
The fintech disruptor also has two clear catalysts for next year. First, it submitted an application to become a bank holding company with the Federal Reserve earlier in 2021. It's also in discussions to acquire a regional bank. With a national bank charter, SoFi would have more opportunities to increase sales and cut expenses. It could expand its lending operations, and it wouldn't have to rely on banking and asset management partners.
SoFi is a lot cheaper to buy now than it was a month ago. It's still a high-growth company with clear catalysts for even more expansion. Its price-to-sales ratio is only 14, which is attractive in today's market for a company that delivered 35% annual sales growth in its most recent quarter. If you liked SoFi before some high-profile investors sold off shares, you should like it even more at this price.
