SoFi stock is going through a rough patch that has seen its valuation drop from nearly $40 billion in November last year to $22.7 billion today. It has slipped by 32% this year, while popular US indices like the Nasdaq 100 and S&P 500 have jumped by double digits.
SoFi Technologies’ retreat could either create a good entry point for long-term investors, or a big mistake if the weakness continues.
Muddy Waters report dented SoFi stock
US investors and analysts have soured on SoFi shares, a trend that accelerated after a report by Muddy Waters. This report alleged that the company had an unrecorded debt worth about $312 million and that it engaged in aggressive accounting to boost its revenue growth metrics. It also noted that the firm had substantial understated credit losses.
At the same time, Muddy Waters accused the company of financial engineering to meet bonuses. It pointed to its share dilution, which has seen its outstanding shares jump to 1.28 billion from 805 million in 2021. Earlier this year, SoFi raised $1.5 billion to boost its balance sheet and fund growth.
Equity issuances are usually bearish for stocks because they dilute existing shareholders.
SoFi Technologies business is doing well
Despite these challenges, Anthony Noto and the team have continued to innovate and position the company for future growth. Since becoming CEO in 2017, he has added its products from 3 to 12 today, making it a “financial supermarket”.
Its platform now offers most services that people use, including personal loans, mortgages, credit scores, an investing platform, and credit card. It recently relaunched its crypto trading platform, allowing users to buy, sell, and hold over 25 coins.
Most recently, it moved into the growing stablecoin industry by launching SoFiUSD. SoFiUSD is backed by the US dollars and aligns with the GENIUS Act. Still, the challenge is that the industry has become highly competitive, with newer stablecoins like PYUSD and RLUSD struggling to gain market share.
The most recent numbers showed that SoFi’s business was doing well. Its revenue jumped by 41% to $1.1 billion, while its adjusted EBITDA was up by 62% to a record high of $340 million.
This growth happened as its members grew by 35% to 14.7 million, and its total originations hit $12.2 billion. Wall Street analysts are optimistic that its business has more room for growth. The estimate is that its annual revenue will jump 30% this year to $4.6 billion, followed by $5.7 billion next year. Its earnings-per-share is also expected to grow from 58 cents this year to 78 cents in 2027.
There are signs that SoFi is not all that overvalued, especially when you compare its revenue growth and its margins. Its forward revenue growth for the year is 30%, while its profit margin is 14%, giving it a rule-of-40 metric of 44%.
SoFi share price technical analysis
SoFi stock chart | Source: TradingView
There are signs that the SoFi stock price has bottomed as bears have failed to drag it below the key support of $14.97. It has formed a double-bottom pattern at this level and a neckline at $20, its highest point on April 17.
The double-bottom level is crucial as it coincided with the strong, pivot, reverse point of the Murry Math Lines. It has flipped the 50-day Exponential Moving Average (EMA).
Therefore, while it’s too early to call a bottom, there is a possibility that it will rebound in the near term. A clear bullish breakout will be confirmed if it moves above the neckline at $20. Such a move will point to more gains to $25.
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