SoFi Technologies (SOFI +3.33%) spooked investors last month when it announced plans to sell $750 million in convertible debt, mere weeks after reporting a blowout Q4 earnings report. Predictably, SoFi's stock price fell on news of the big offering -- down 15% in a day. But in the month since, SoFi's share price has held pretty steady.
And now, one Wall Street analyst thinks it's safe to own SoFi again.
On Thursday, Keefe, Bruyette & Woods analyst Timothy Switzer raised his price target on SoFi stock by 15%, to $7.50 per share. Granted, that's not much more than the stock already cost -- which is why Switzer only upgraded the stock to "market perform," stopping short of saying "buy."
But even so, Switzer is no longer telling investors to sell SoFi stock.
NASDAQ: SOFI
Key Data Points
Why SoFi stock's no longer a sell
Which makes sense. SoFi stock had already fallen nearly 26% year to date, removing a lot of risk from the shares. Switzer may still have reservations, questioning SoFi's "sustainability of earnings." Then again, with the stock down so much, investors are no longer paying for the presumption that earnings will stay high.
Here's the best part: Investors also needn't pay for the possibility that earnings will go higher.
Consider: SoFi will use most of its new cash to buy back preferred stock on which it was paying a 12.5% dividend. But SoFi's new debt costs only 1.25% interest. Ultimately, SoFi should end up lowering its interest costs more than $65 million annually. This cash should immediately drop to the company's bottom line, making it easier for SoFi to report its first GAAP-profitable year in 2024 -- and keep on growing its profits in future years.
Granted, with only $0.08 per share in profit projected this year, SoFi stock may not look like a bargain at 92.5 times 2024 earnings. If profits grow as projected, though, SoFi could earn $0.50 per share in 2026, giving it a forward P/E ratio of only 15x the company's current share price. At that valuation, SoFi stock looks like a buy.
