Stocks to sell

Don’t Expect a 2023 Recovery for SOFI Stock

As 2022 comes to a close, investors in SoFi Technologies (NASDAQ:SOFI) may be hoping that 2023 to be the year this hard-hit fintech stock starts to make a recovery. Yet despite the massive sell-off experienced by SOFI stock so far this year, which has pushed it to rock-bottom prices, I wouldn’t “bank” on next year being a banner one for this neo-bank.

Rather, it may be more likely that SOFI stays on its current downward trajectory. Largely, because the company’s third-party student loan financing volume is likely to stay depressed for most of 2023, given that the student loan repayment pause has been extended yet again.

That’s not all. With this pause extension further extending SoFi’s profitability timeline, the stock may be vulnerable to another severe pullback. Rising rates may put more pressure on shares in companies that are growing fast, but are currently unprofitable.

SOFI SoFi Technologies $4.40

SOFI Stock: New Year, Same Problems

It’s unclear whether the Biden Administration will win its Supreme Court battle to implement partial student loan forgiveness, but it’s clear that the delay in reinstating loan repayments extends a recovery for SOFI’s student lending business by nearly nine months.

If the court case isn’t resolved by June 2023, payments will resume no sooner than Aug. 29, 2023. This calls into question whether the company can deliver results next year that live up to current expectations. Analyst consensus calls for 33.6% revenue growth, and a narrowing of losses from 42 cents to 25 cents per share (or EPS), in 2023.

Failing to meet these estimates will make it difficult for SOFI stock to move meaningfully above present price levels. In fact, if SoFi fails to narrow its losses this year, shares could be at risk of making an additional move lower.  As I’ve discussed before, the company is already expected to remain in the red in 2023 and 2024.

It’s not for certain, but this latest pause extension could push the year in which SoFi Technologies reaches to an even later date. Meanwhile, speculative growth stocks continue to fall out of favor, a trend that is likely to continue.

Dropping Deep into Penny Stock Territory

SOFI stock currently trades for around $4.40 per share. That’s a price that places the stock at the upper reaches of “penny stock levels” (under $5 per share). In the coming twelve months, though, this floundering fintech could drop deeper into “penny stock territory.”

Again, speculative growth stocks are no longer so hot amongst investors. The steep rise in interest rates, due to the Federal Reserve’s moves to fight high inflation, has resulted in a severe de-rating for stocks valued more on future potential than on current results. High-growth, not-yet-profitable SoFi fits well into this category.

Yes, hopes for a 2023 “Fed pivot” did spike last month, following the release of promising inflation data. However, while the Federal Reserve may be on the verge of easing the pace of future interest rate hikes, it may be until 2024 that the central bank begins to lower rates again.

As rates keep moving higher, the de-rating of speculative growth plays will continue. Assuming that SoFi’s operating performance falls short or at best meets expectations, this points to a further slide in price, albeit likely less severe than the 72.3% SOFI stock price decline experienced over the preceding twelve months.

The Verdict

In the coming year, SoFi Technologies appears more likely to hit new lows instead of experiencing even a partial recovery. Although another 72.3% drop may not be in store, don’t take this to mean there’s minimal downside risk from here.

The aforementioned issues could be enough to push the stock below its tangible book value ($3.34 per share). Perhaps, to even lower prices, as continued cash burn will likely reduce this figure. For reference, SoFi’s tangible book value was at $3.79 per share at the end of 2021.

Coupled with this moderately-high downside is questionable long-term upside potential. As I’ve argued before, SoFi needs to handily beat future earnings forecasts just to make a return to $10 per share.

With little to suggest the risk/reward proposition with SOFI stock will improve in 2023, continue to stay away.

SOFI stock earns a D rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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