Shares of SoFi Technologies Inc. experienced a significant surge on Monday, only to give back some of those gains the following day as doubts were raised regarding the stock’s recent performance relative to the company’s financial reality.
Although analyst Michael Perito from Keefe, Bruyette & Woods acknowledged the “strong momentum” surrounding SoFi’s stock and his own optimistic outlook for future growth, he found it challenging to adopt a bearish stance. Nevertheless, Perito believes that SoFi’s valuation has exceeded its fundamental earnings prospects, prompting him to downgrade the stock from market perform to underperform.
Perito predicts that the financial-technology company will achieve only modest profitability in 2023 and notes that as growth rates inevitably slow down, capital consumption must also decrease. Despite its distinctive business model and a growth rate generating 80% of revenues from bank-related activities, SoFi’s current valuation becomes increasingly difficult to justify on a fundamental level. In fact, SoFi shares were trading at over 30 times the high end of the company’s target 2023 range for earnings before interest, taxes, depreciation, and amortization.
While Perito downgraded the stock, he did raise his price target to $7.50 from $5.50.
Following Perito’s skepticism, SoFi shares experienced a nearly 6% decline in Tuesday morning trading following an impressive 20% surge on Monday. Overall, the stock has seen a remarkable increase of 130% so far this year, with its most recent value just below $11.
Reiterating similar concerns, Jeffrey Adelson from Morgan Stanley also maintains an underweight stance on SoFi.
“Bulls win the day, but valuation looks expensive with execution risks into 2024 as growth slows and rates stay higher for longer,” Adelson remarked while assigning a target price of $7 for the stock.
The Potential of Upstart’s Stock
Andrew Jeffrey of Truist Securities has expressed his optimism about Upstart, believing that it has the potential to outperform market expectations. In a note to clients, he stated that although Upstart is still a contested stock, robust second-quarter results and the company’s credible mainstream banking ambitions have shifted the burden of proof to its detractors.
Jeffrey pointed out that many investors and analysts view Upstart as just another bank, overlooking the company’s unique approach. He emphasized that Upstart is revolutionizing the way consumers bank by accelerating deposit share, automating loan decisioning, and providing a comprehensive suite of financial products and solutions. According to Jeffrey, this structural change sets Upstart apart from legacy banks, as they cannot replicate its model.
As a result of the positive outlook, Jeffrey has increased his price target for Upstart’s stock from $11 to $16.
Eugene Simuni from SVB MoffettNathanson also shares a bullish sentiment towards Upstart. He noted that Upstart’s earnings demonstrated strength across its business sectors and alleviated concerns about the credit quality of its personal loan book. Simuni titled his note to clients “Much More Than a Student Lending Recovery Story” and adjusted his price target for SoFi shares from $12 to $14.
Overall, both Jeffrey and Simuni are confident in Upstart’s potential for success and have raised their price targets accordingly.
