It's an understatement to say it's been a disappointing year for SoFi Technologies (SOFI +0.64%) investors so far. Despite the fintech company continuing to post strong results, its shares remain down for the year. Year to date, as the S&P 500 has gained by around 13%, this fintech stock is down by over 31%.
Yet while there are substantive reasons for this sharp price decline, for those who have yet to buy or are interested in doubling down, this year's volatility could work in your favor. SoFi remains a compelling growth story, even as macroeconomic uncertainty continues to cloud the near-term picture.
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Why SoFi stock remains beaten down by mixed sentiment
It's not only the investing public that holds a bearish view of SoFi Technologies shares. According to FactSet, out of 29 analysts covering the stock, only 10 rate it a buy or the equivalent to buy, while 14 rate it a hold, with 5 rating the stock a sell or the equivalent to sell.
In general, the market remains downbeat on lender-focused financial stocks like SoFi, due to the prospect of persistent inflation and of future interest rate hikes. It doesn't help that SoFi's latest results were mixed at best. While the company reported record net quarterly revenue of $1.2 billion, up 40% from the prior year's quarter, and raised its full-year revenue guidance to between $4.75 billion and $4.85 billion, it didn't raise its earnings guidance.
In the market's view, leaving it unchanged underscores the uncertainty surrounding the fintech's earnings growth potential in the current macroeconomic climate. Add in lingering bearishness created by a short-seller report issued earlier this year that made numerous allegations of "financial engineering" which the company vigorously denies, and it's not surprising that SoFi can't seem to get back into favor among investors.
NASDAQ: SOFI
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The bullish silver lining
While those bullish on SoFi right now are in the minority, one bullish analyst lays out a strong case for the stock. Last month, Piper Sandler analyst Patrick Moley issued an overweight rating and $22-per-share price target on SoFi, citing the company's continued success in cross-selling other financial services to its lending customers.
In the analyst note, Moley also highlighted SoFi's "younger, credit-worthy" demographic of high-earning professionals in their late 20s to early 40s. This factor may bode well for both credit risk concerns and the growth potential of SoFi's refinancing products. Moley's $22 per share price target may sound modest, but this is likely his forecast for the next twelve months.
Over the next five years, upside potential for SoFi could be even more substantial. Moley's own forecast calls for earnings of 63 per share this year, and 88 cents in 2027. Even if earnings growth slows down, despite continued tailwinds like strong membership growth and cross selling, 20% annualized earnings growth in 2028 and beyond could lead to earnings of more than $1.80 per share by 2031.
At a reasonable 20x multiple, that would place the stock at $36 per share, or more than 100% above SOFi's current stock price. While the near term could remain rocky for what's become an out-of-favor growth stock, this could create an opportunity to build a position at or below current prices.
