What happened
Shares of the one-stop financial services company SoFi (SOFI -0.42%) traded nearly 3.7% lower today for no obvious reason other than broader market trends, which seemed to be pulling most fintech companies downward today.
So what
Tech and fintech stocks rebounded last week. Even after a slight dip today, the Nasdaq Composite is still up more than 5% over the last five trading days as of this writing.
But there is still a lot of uncertainty in the current environment. Inflation is still a question mark in terms of whether or not it has flatlined, and the Federal Reserve is expected to keep raising its benchmark overnight lending rate, the federal funds rate, to try and get inflation under control. This historically doesn't bode well for high-growth tech stocks. Despite the gains last week, I don't think the selling is done just yet.
However, SoFi has a lot going for it that could enable it to navigate successfully through the rising-rate environment and a potential recession. For one, it recently became a bank, which over time will allow it to benefit more in a rising-rate environment. It also has access to cheaper deposits that it can use to fund its lending operations instead of the higher-cost warehouse debt it was using.
SoFi also serves higher credit-quality customers with very solid annual incomes and high Fair Isaac Corporation (FICO) scores that should be more resilient in a recession. The company's strongest business unit, its student lending division, has been operating at low capacity since the pandemic began. That will eventually resume once the federal government's student loan moratorium comes to an end.
Now what
While the stock has fallen quite a lot, SoFi is still not profitable and trades at more than 50 times its projected adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2022, so it's still not that cheap. But I do think the stock is a long-term buy because I like the business it is building.
