SoFi Technologies shares have dropped 39% since January, hit by a Muddy Waters short-seller report, guidance that missed market hopes, and a valuation still above sector peers. Yet the fintech’s first-quarter revenue climbed 43% and its member base grew 35%, leaving a gap between the business and the stock.
SoFi Technologies shares have fallen 39% since January, ending a couple of years of beating the market. Three headwinds explain the slide: a short-seller report, guidance that came in softer than the market anticipated, and a valuation still above sector peers.
The short-seller allegations
Activist firm Muddy Waters claimed SoFi inflated its profitability through questionable accounting, including overstated loan values, according to The Motley Fool. SoFi’s management strongly denied the claims. Because a short-seller gains when a stock falls, the firm has its own stake in a lower price. For now, the author suggests the report should not weigh too heavily on the stock.
Valuation still runs hot
SoFi still looks expensive on valuation, and the author flags its high multiple as the third headwind. The shares trade at 28.1x forward earnings against 15.2x for financial stocks on average. Still, the piece notes SoFi is growing revenue and earnings much faster than many peers, suggesting the stock is worth a premium.
The business behind the stock
SoFi recently traded near $16.46, for a market cap of about $21 billion. Its 52-week range spans $14.92 to $32.73. First-quarter revenue rose 43% year over year to $1.1 billion. Earnings per share rose 100% to $0.12 over the same period, though many investors had expected more. The company’s gross margin stood at 61.74%. Trading volume of 92.9 million shares ran above the 78.5 million average.
The member base reached 14.7 million, up 35%. Products grew 39% to 22.2 million. That works out to about 1.5 products per member, leaving room to cross-sell more services. The author expects growth could accelerate as SoFi launches new products and services, and argues the company is slowly building a moat through switching costs that deepen as members add products. Even so, its heavy reliance on personal loans keeps the stock risky, and the shares will likely stay volatile whichever way they move.
Source: The Motley Fool
Trading involves risk.
Risk Disclaimer
