Valued at $16.2 billion by market capitalization, SoFi Technologies (SOFI) is is a financial technology (fintech) company that provides student loans and various other financial services including mortgages, credit cards, and insurance.
Despite underperforming in the first half of 2024, SoFi stock surged in the second half, skyrocketing 132% over the past six months. Overall, its stock rallied about 72% over the past 52 weeks, outperforming the benchmark S&P 500 Index ($SPX), which gained 26% in the same time period. However, the stock is still trading 10% below its 52-week high $17.19.
Sofi Stock Tumbles on Analyst Downgrade
After ending the year with a massive rally, SoFi faced a setback on the first trading day of the new year. On Jan. 2, its stock plunged 8% following a downgrade by Keefe, Bruyette & Woods analyst Timothy Switzer, who lowered SoFi’s rating from “Hold” to “Underperform,” which is the equivalent of a “Sell” rating. The firm also cut its price target from $8 to $7 per share, citing overvaluation concerns. Switzer argued that the stock’s recent surge was driven by investor enthusiasm for high-growth fintech stocks and broader economic optimism, leaving its valuation overstretched even if SoFi meets its ambitious goals. He also questioned the sustainability of favorable conditions like lower interest rates and an improving macroeconomic environment.
Is Sofi Stock Overvalued?
There is no doubt that the elevated price of SoFi stock took its valuation to new heights. It is currently trading at 127 times forward earnings and 6 times next year’s sales, significantly higher than the industry’s 12.24x and 2.96x average ratios.
While these metrics suggest overvaluation relative to traditional benchmarks, SoFi’s growth potential may justify the premium. The company is projected to grow revenue from $3.01 billion in 2025 to $4 billion in 2027 and then $4.6 billion in 2028, implying an annualized growth rate of 15%-20%. Achieving this requires sustained user acquisition, loan portfolio expansion, and margin improvements while navigating competitive and macroeconomic risks.
SoFi’s Transition to Profitability
SoFi's financial performance has been nothing short of impressive. The company is on track to report $205 million in net income in 2024, a dramatic turnaround from the $301 million net loss incurred in 2023.
Analysts expect SoFi’s revenue to rise by 17% and earnings per share to grow by 141% to $0.29 in 2025. Declining interest rates are anticipated to act as a powerful catalyst, boosting loan demand by lowering deposit costs and improving net interest margins. Additionally, the dissipation of headwinds, such as the student loan repayment pause, is poised to further enhance the company’s financial outlook.
Investors are eagerly anticipating SoFi’s upcoming Q4 report as it is set to confirm the company’s first full year of positive net income. Investors remain optimistic, especially since the company consistently outperformed EPS expectations over the last four quarters. A continuation of this trend in Q4 could significantly bolster market sentiment.
In addition, the market atmosphere has been buoyed by the Federal Reserve’s recent interest rate cuts and SoFi’s upbeat Q3 update on its lending business. A strong Q4 report with favorable EPS and lending revenue numbers could trigger another substantial stock rally.
SOFI Stock Forecast
While KBW analysts downgraded the stock to an equivalent of a “Sell” rating, Wall Street holds a consensus rating of “Hold” for now. Out of 17 analysts, 3 have a “Strong Buy,” one has a “Moderate Buy,” eight suggest “Hold,” three have a “Moderate Sell,” and two give it a “Strong Sell” rating.
The average 12-month price target of $11.57 per share implies expected downside of approximately 26% from its current levels.
The Bottom Line on SoFi Stock
SoFi’s 2024 rally and elevated valuation multiples raise concerns, but its long-term growth potential and improving fundamentals make it a compelling option. While the stock looks overvalued, SoFi’s financial turnaround, including net income growth and revenue diversification through partnerships like the $2 billion Fortress deal, signals resilience.
Although the stock’s risk-reward profile has become more balanced after recent corrections, delivering on its ambitious forecasts will be crucial. For long-term investors, SoFi remains a buy candidate with the potential for steady returns in 2025 and beyond.
