What happened
SoFi Technologies (SOFI -0.85%) probably wanted to catch a case of the Mondays again. One day after its stock popped following a solid earnings report, Tuesday saw investors trade out of it enthusiastically. That apparent correction was exacerbated by one analyst's recommendation downgrade.
So what
As often occurs when a company posts a beat-and-raise quarter, several analysts were quick to raise their price targets on SoFi stock Tuesday.
One notable dissenting voice, however, was that of Keefe, Bruyette & Woods pundit Michael Perito. While he raised his SoFi price target like his peers -- in his case, to $7.50 from his previous $5.50 -- he downgraded his recommendation on the fintech. He now believes it is an underperform (read: sell); prior to that he ranked it as a market perform (hold).
Admittedly, this wasn't due to valuations; rather Perito is concerned that the latest run-up in SoFi (which saw the share price notch a new all-time high) is unsustainable. Additionally, he wrote "profitability will be modest at best in 2024 (i.e. low-single-digit ROE), with growth rates likely to moderate as one way or another, capital consumption has to slow."
Now what
Perito's new note only highlighted the ballooning of valuations with SoFi stock's popularity. It's still a young company with much to prove, and it's clear investors were getting nervous about the levels it was reaching. That being said, its second quarter highlighted some very encouraging developments, such as year-over-year revenue growth approaching 40% and a significant narrowing of its headline net loss figure.
