Don’t expect a recovery in 2023 for SOFI stocks

As 2022 draws to a close, investors in Sofi Technologies (NASDAQ:SOFI) may be hoping that 2023 will be the year this hard-hit fintech stock begins to rally. Yet despite the massive sell-off in SOFI shares so far this year, which has pushed them to rock bottom prices, I wouldn’t “bet” that next year will be a banner for this neo-bank.

On the contrary, SOFI is more likely to remain on its current downward trajectory. In large part, because the company’s third-party student loan funding volume is expected to remain depressed for most of 2023 as the student loan repayment pause has been further extended.

That’s not all. With this pause extension further extending SoFi’s profitability timeline, the stock could be vulnerable to another significant pullback. Rising rates can put increased pressure on the stocks of companies that are growing rapidly but are currently unprofitable.

SOFI stock: new year, same problems

It’s unclear whether the Biden administration will win its battle in the Supreme Court to implement a partial student loan forgiveness, but it’s clear that the delay in restoring loan repayments is extending the recovery of nearly nine months. SOFI’s student loan business.

If the court case is not resolved by June 2023, payments will resume no earlier than August 29, 2023. This calls into question the company’s ability to deliver results next year to match expectations. current. Analyst consensus calls for revenue growth of 33.6% and a reduction in losses of 42 cents to 25 cents per share (or EPS) in 2023.

If these estimates are not met, it will be difficult for SOFI stock to move significantly above current price levels. In fact, if SoFi fails to pare its losses this year, stocks could risk falling further. As I said before, the company should already remain in the red in 2023 and 2024.

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

Falling deep into Penny Stock territory

SOFI stock is currently trading at around $4.40 per share. It is a price that puts the stock at the upper end of “penny stock levels” (less than $5 per share). Over the next twelve months, however, this struggling fintech could slide further into “penny stock territory.”

Again, speculative growth stocks are no longer so popular among investors. The sharp rise in interest rates, due to measures taken by the Federal Reserve to combat high inflation, led to a severe devaluation of stocks valued more on future potential than on current results. High-growth and not-yet-profitable SoFi fits nicely into this category.

Yes, hopes for a “Fed pivot” in 2023 soared last month, following the release of promising inflation data. However, while the Federal Reserve may be poised to slow the pace of future interest rate hikes, it may take until 2024 for the central bank to start cutting rates again.

As rates continue to rise, the devaluation of speculative growth strategies will continue. Assuming SoFi’s operating performance is below or at best in line with expectations, this points to further price declines, although likely less severe than the 72.3% decline in SOFI’s share price recorded over the past twelve months. previous ones.

The verdict

Over the coming year, SoFi Technologies looks more likely to hit new lows rather than experience even a partial recovery. While another 72.3% decline is not in store, don’t think that means there is 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, at even lower prices, as continued consumption of cash will likely reduce this number. For reference, SoFi’s tangible book value was $3.79 per share at the end of 2021.

Coupled with this moderately high downside, there is questionable long-term upside potential. Like I said before, SoFi needs to easily beat future earnings forecasts just to get back to $10 per share.

With little to suggest that the risk/reward proposition with SOFI stocks will improve in 2023, continue to steer clear.

The SOFI share obtains a D rating in Portfolio Ratingr.

As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.