Shares of SoFi Technologies (SOFI +5.03%) fell 16.6% this week, according to data provided by S&P Global Market Intelligence, after a noted Wall Street analyst downgraded the banking and fintech services stock.
NASDAQ: SOFI
Key Data Points
This analyst is cautious on SoFi stock
In a note issued to clients early Wednesday, Keefe, Bruyette & Woods analyst Mike Perito downgraded SoFi to underperform from market perform and lowered his per-share price target on the stock to $6.50 from $7.50.
To justify his relative bearishness, Perito noted that SoFi shares had rallied more than 40% on the heels of its stellar third-quarter report in early November. He also worries that falling interest rates in the coming year could weigh on SoFi's earnings given its fair-value accounting -- particularly as it pertains to the reported value in any given quarter of the unsecured personal loans SoFi holds on its balance sheet.
Perito estimates for every quarter-point reduction in the federal funds rate this year, SoFi's reported revenue could be impacted by around $50 million, or around $0.05 per share in earnings.
What's next for SoFi investors?
Indeed, I wrote an article several months ago explaining why the Fed's rate hikes only served to accelerate SoFi's growth and path to profitability. But in the same article, I also highlighted comments from SoFi CEO Anthony Noto detailing how -- with the help of its national bank charter and superior cost structure compared to traditional banks -- SoFi will also be able to hold its own rates much longer and higher than competitors even as the federal funds rate begins to decline.
With SoFi management predicting the company will report its first-ever generally accepted accounting principles (GAAP) net profit along with its fourth-quarter report later this month, I'm perfectly content using this pullback as an opportunity to add to my position.
