Why SOFI (NASDAQ:SOFI) Stock Is Worth Considering Ahead of Earnings
In all probability, SoFi (NASDAQ:SOFI) should post an earnings surprise in the third quarter. The need for personal loans keeps increasing, especially during tough economic times when people usually need additional funds. Credit card companies are becoming more aggressive with their interest rates, so people have turned to personal loans instead. SoFi has been able to capitalize on this trend because it offers both consumer financial services and lending. The future looks bright for the company. As such, we are bullish on SOFI stocks.
Investors are hoping that strong bank profits hint at the resilience of the economy. Investor optimism has been at an all-time high of late, with most reacting positively to the latest financial results from leading banks. This is great news for SOFI investors who were hoping that strong bank earnings would indicate that the financial sector is poised for a comeback.
SoFi’s stock is down over 65% year-to-date, but it could see a recovery soon. There’s only two months left of this year and if it can dish out an earnings surprise, we could see the price rally again. It’s trading at a beta of around 2.0, suggesting it’s twice as volatile as the broader market. Therefore, investing in them comes with a fair share of risk.
However, it presents itself as an excellent pre-win bet. It is currently trading at around 3.5 times forward sales, which is significantly lower compared to a few months ago.
SoFi taps into the growing demand for personal loans
The financial services offered by SoFi aim to help consumers with their daily needs. The company has served millions of customers through high-yielding checking and savings accounts, credit cards, brokerage services and more. In addition, it offers credit products that can be approved faster and on more favorable terms thanks to its extensive database. In essence, SoFi is a financial one-stop shop.
In recent quarters, the company has beaten expectations. With third quarter results forthcoming, it is plausible to expect another solid result on the back of a robust personal credit trend that continues to grow steadily. SoFi’s expansion into new markets and its ability to offer a personalized service will make it easier to reach new customers.
Additionally, the company’s strong balance sheet is a major asset for the company. It has a whopping $707 million in cash, which gives it plenty of room to grow its business at a robust pace for the foreseeable future. Even more encouraging is that losses have improved significantly.
The company reported a loss of $0.26 per share in the second quarter of 2021, which improved 53.8% to a loss of $0.12 per share in the second quarter of this year. It is possible that the result will be positive by next year. Also, SoFi ended the quarter with 4.3 million members, a 69% increase over the prior-year period.
As such, we are incredibly positive about the future growth and success of the company. Its losses are unlikely to hamper its plans going forward, and with student loan issuance improving dramatically over the next year, SOFI stock could rally sharply.
What is the price target for SoFi stock?
As for Wall Street, SOFI stock retains a consensus rating of Moderate Buy based on six buy, three hold and zero sell assigned over the past three months. The average SOFI price target is $8.25, which means a 51.38% upside potential. Analyst price targets range from a low of $7 per share to a high of $10 per share.
Conclusion: SOFI stock is likely to beat gains
The company is expected to report its third-quarter results soon, and investors will have a better understanding of where it stands. In all likelihood, however, it should record another solid hit on both the top and bottom.
The surge in personal credit is being fueled by consumers seeking debt consolidation and easily accessible funds. SoFi has capitalized on this opportunity by increasing its origination rate faster than its peers.
Stocks are on an uptrend following recent bank gains, but investors should also brace for more volatility. The Federal Reserve is set to raise interest rates at its upcoming meetings over the next few months as inflation remains incredibly high.
Therefore, the volatility is given in the current market scenario. However, this does not detract from the quality of SoFi and a long-term bull case. Investors should take a long-term view and buy the stock while it’s trading near its 52-week low.