Shares of SoFi Technologies (SOFI 2.06%) were slumping this week, according to data from S&P Global Market Intelligence. The online bank and fintech upstart soared last week on fast growth but is pulling back this week, likely due to insider sales and continued unprofitability.
As of 12:47 p.m. ET on Friday, Nov. 10, SoFi shares are down 15% this week to $6.81. This is essentially a round trip to where the stock traded at before its earnings release last week.
Insider sales, no profits
This week -- in filings with the SEC -- SoFi reported some stock sales from insiders, such as its chief marketing officer (CMO). These weren't insignificant sales, either. In the CMO's case, she sold 136,000 shares of SoFi stock, or over 30% of her stake in the company.
Investors don't like when insiders make significant, unplanned sales of the stock they own, as it could indicate skittishness about the future. As this news reverberated around Wall Street, it likely put some selling pressure on SoFi.
However, in general, insider sales are overrated. In fact, yesterday, the CEO and chief financial officer both bought shares of SoFi in the open market. Some investors probably took this as a bullish signal, when in reality, you can't really deduce why these executives made the personal decision to sell their stakes.
It is more important for investors to focus on how SoFi's underlying business is performing. Last quarter, it continued to grow quickly. Total net revenue was $537 million, up from $424 million in the same period in 2022. Deposits to its online bank are soaring, with $2.9 billion added just in the quarter.
Profits did not look as promising. SoFi posted a net loss of $267 million in the quarter and has lost $349 million so far this year.
Where growth needs to materialize
As a bank, one of SoFi's most important metrics is book value per share, which tracks the equity value it is building through its banking operations. This is how you make money as a shareholder over the long run.
In its history as a public company, SoFi has not grown its book value per share. In fact, since going public, SoFi's book value per share is actually slightly down, which is not a good sign.
Investors need to track SoFi's operations and try to deduce whether its operational decisions are setting up the business to grow book value per share over the long run. If you believe it is on the right track, then the stock will likely start to rise over the next five years and beyond. If not, it's best to avoid this fintech disruptor.
