Shares of SoFi (SOFI -5.16%) dropped 17.5% last month, according to data provided by S&P Global Market Intelligence. A strong earnings report wasn't enough to overcome the sell-off that hit growth stocks and bank stocks.
SoFi popped sharply upward in after-hours trading following its quarterly earnings release on March 1, but those gains all faded as interest rate hikes and the war in Ukraine caused growth stocks to take a beating.
SoFi reported 54% adjusted earnings growth year over year, driven by the addition of nearly 525,000 new members. The fintech stock incurred larger net losses than in the prior-year period, but it delivered positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the sixth consecutive quarter. Its losses were lower than expected by Wall Street, and SoFi's projections for the full year 2022 indicate that it expects to maintain this momentum.
Unfortunately, that wasn't good enough to keep the stock above water on the month. The Invesco KBW Bank ETF dropped 7.2% in March, as bank stocks retreated due to fears of a recession induced by rate hikes. Higher rates are usually good for banks, but aggressive monetary policy could complicate matters. Growth stocks also had a tough run early in the month, as investors responded to uncertainty by reducing their appetite for risk. SoFi is right at the intersection of banking and growth, so it was getting pressure from all sides.
SoFi still hasn't published any results since it received regulatory approval to become a bank holding company and acquired Golden Pacific Bank. With this development, SoFi will be able to offer more products to its members. The company's management is also confident that this will improve margins on lending products, since it won't have to rely on external assets to fund loans. That reduces its costs to provide loans, which is a huge piece of its business.
SoFi's price-to-book ratio is over 2, which would make it one of the most expensive banking stocks. That's not an outrageous premium for a disruptive fintech business, but it still opens the door to volatility.
SoFi stock is also likely to react to the federal student loan moratorium. The moratorium on payments is set to expire in May, but many regulators are pushing to have that extended. The market is pricing in the likelihood that SoFi's student loan refinancing business will continue to function with that drag. The stock could get a nice bounce if the moratorium expires and the demand for refinancing returns.