What happened
Shares of SoFi Technologies (SOFI 4.55%) rose 22.2% in May, according to data from S&P Global Market Intelligence.
Part of the reason for last month's bounce-back was that SoFi had been absolutely decimated entering May, after a 35.2% plunge in April alone. During the prior month, management preannounced a lower guide for the year after the Biden administration postponed the resumption of student loan repayments until later in the year.
Still, there is more to SoFi than just student loans, as the company showed progress developing its fintech ecosystem on its first-quarter earnings release.
So what
Initially, SoFi fell further after its earnings report, despite beating expectations for revenue and losses per share. Revenue did grow at a 49% clip, which is impressive, and net losses per share of $0.14 also came in ahead of expectations, with net losses narrowing to $110 million, improving from a $177.5 million net loss in the prior year's first quarter. The company also added 408,000 new members and had its members using 689,000 more products than a year ago, up 84%. Management also raised its 2022 guidance, after lowering it during the prior month amid the student loan forgiveness extension.
Those metrics are definitely solid, but the stock market is still in no mood for stocks that are printing such big losses, and the stock initially fell after earnings. Perhaps the big increase in personal loans, which are viewed as riskier than student and home loans, was the culprit.
However, after the report, several analysts came to the stock's defense. Oppenheimer analyst Dominick Gabriele said:
SoFi is more fee-driven today and their originated loans are super prime in both student and personal (yes, even personal). ... They're learning to underwrite credit cards, yet card is still a very small part of the business. We're less focused on credit for SoFi versus other lenders.
On the conference call, SoFi management did point out its average FICO score across its borrower base was 746, which is pretty high. So unlike other fintechs such as Upstart that look further down the credit spectrum, SoFi's lending should hold up better than others in a downturn, as the analyst indicated.
After the positive analyst commentary, CEO Anthony Noto swooped in and bought 39,000 shares of stock at $6.50 on May 13, increasing his holdings by $253,500. That seemed to begin the big move up in the stock, which carried through the rest of the month as the broader fintech sector rebounded.
Image source: Getty Images.
Now what
Despite the move up in May, SoFi still trades near its all-time lows. So is it still a buy?
It's a bit difficult to value SoFi today, given that it's growing at a very high rate but still printing significant quarterly losses, while its product mix is changing and its underwriting hasn't been through a bad recession.
In the near and medium term, the stock is likely to move with changes in the macroeconomic outlook. That outlook is pretty pessimistic right now, but things could also turn out better than feared, given that sentiment is near rock-bottom.
Over the long term, SoFi will probably win or lose based on how it serves customers, and whether it can continue to cross-sell its Prime borrowers to more and more products over time. In general, SoFi's Prime customer cohort should do well, and I would expect SoFi to be a success, ultimately; however, it's hard to know exactly when the company may become profitable, and a bad recession could throw things for a loop. Yet at this low valuation, SoFi is definitely a stock for growth investors to investigate closely.
