What happened
A Wall Street analyst believes SoFi Technologies (SOFI 0.26%) is set up well to easily exceed its 2023 guidance. Investors are buying in, sending shares of SoFi up as much as 7% on Wednesday morning.
So what
SoFi operates an online-based bank and personal finance company. The company's shares have been sliced nearly in half over the past year as investors fretted about whether SoFi has a real competitive advantage, and on worries about what rising interest rates will do to financial stocks.
Mizuho analyst Dan Dolev apparently believes those fears are overstated. On Wednesday, the analyst raised the firm's price target on SoFi to $9, from $6, and kept a buy rating on the shares. Dolev said the rising rate environment can work in SoFi's favor and provide that competitive advantage that investors have been craving.
The analyst laid out a "blue-sky scenario" where SoFi is able to meaningfully exceed the $2 billion upper end of its 2023 revenue guidance, helped by a widening spread between the rate it charges borrowers and the rate it pays for funds. SoFi can outperform, according to Dolev, because it can tap significant amounts of low-cost customer deposits.
Now what
SoFi has generated impressive growth, but questions about whether it has any real moat are likely to persist. It also is not inexpensive despite the stock's decline, trading at more than 200% its tangible book value.
Dolev's bull case is intriguing, and could prove to be correct, but investors should keep in mind that this remains a high-risk, high-reward investment. For those who believe in the promise, SoFi is best kept as part of a well-diversified portfolio.
