What happened
Shares of the one-stop-shop financial services company and digital bank SoFi (SOFI -10.48%) fell roughly 10% today after a number of analysts cautioned that the stock is due for a breather after a huge recent rally.
So what
The passage of a bill to suspend the debt ceiling until 2025 also ended the student loan moratorium. This is a big deal for SoFi because the company has a student loan refinancing business that was essentially its largest revenue driver before the moratorium went into place in 2020.
With SoFi having risen 100% this year before today, analysts have cautioned that the fintech is likely due for a break.
"While we agree the payment moratorium expiry is a positive, we now see the positive fundamental aspects of the story as largely priced in," Bank of America analyst Mihir Bhatia said in a research note.
Bhatia also noted that expiration of the moratorium was already a part of SoFi's outlook, "so we don't expect earnings forecasts to materially change though there could be some upside to 3Q estimates."
Piper Sandler analyst Kevin Barker said the stock may have more room to run if interest rates fall because that would lead to more favorable margins and better lending opportunities.
"However, we have seen rates actually move higher in the past two months, which will be an incremental headwind in the near term, and we are increasingly concerned rates could remain higher for longer due to persistent inflation," Barker wrote in a research note.
Now what
I certainly agree with the analysts here, and I'm not sure I quite understand the huge run-up in the stock price in the first place.
While student loans can certainly boost the earnings power of SoFi, the company has heavily leaned into personal loans to replace the slowdown in student lending, which has superior margins.
Additionally, while the trajectory of interest rates remains uncertain, a higher-for-longer scenario could be very detrimental to SoFi's business if the company can't sell loans to investors or has to sell them at worse margins, so I see no need to invest in the stock right now.
