Buy SOFI stocks if there is another rate hike
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the Sofi Technologies (NASDAQ:SOFI), which began in November, continued into the new year. Since the start of 2022, SOFI stock has plunged another 5%, changing hands now for around $15 per share.
What has caused this continued decline in fintech gaming? The prospect of higher interest rates in 2022. The US Federal Reserve plans to raise interest rates at least three times this year. Generally, higher rates mean lower valuation multiples for growth stocks.
Worse still, another sell-off caused by rate hikes could be coming soon. That is, if the Fed’s response to inflation ends up happening at a faster pace, as some analysts are beginning to predict. This steeper rise in interest rates will likely lead to a larger multiple compression. But while bad in the short term, that’s no reason to completely ignore SOFI stocks.
As I said before, increased volatility caused by changes in interest rates could push Sofi towards a “can’t miss” entry point. Additionally, a larger increase in interest rates will bode well for the underlying business of the business. SOFI may not be a buy today, but it is one to watch in case it takes another dive.
The latest with SOFI Stock
With recent news suggesting the Fed would raise rates faster and earlier this year, growth players have found themselves under pressure. This led to another round of declines.
This factor and, to a lesser extent, the bearish outlook for fintech on the sell side, caused SOFI stock to drop further. Interest rate fears may ease again in the near future. For now, the market may believe it has readjusted valuations to reflect the likely rate hikes. However, by the time the Fed officially raises rates in March, we could see another round of volatility.
Why? Well, there could be more than three interest rate increases in 2022. Worse still, the size of each increase could be just 25 basis points (0.25%) larger. Of course, that doesn’t mean the Fed is ready to heed outspoken billionaire Bill Ackman, who recently called for an initial 50 basis point (0.5%) jump in interest rates. However, when it comes to upcoming rate hikes, it may be wise to expect the unexpected.
Given that inflation has reached multi-decade highs, the central bank could end up taking drastic measures. A sharp rise in interest rates could mean another round of steep declines for stocks that have thrived during the near-zero interest rate environment of the pandemic.
Higher interest rates have a silver lining
If the scenario described above materializes, SOFI stock could plunge again, even if it continues to show a very high rate of expected annual revenue growth (43.3% this year). Of course, a potential dip below $10 per share may seem daunting at first. Many other former special purpose acquisition companies (SPACs) have fallen below their initial price of $10 per share and have not returned to double digits. However, I wouldn’t consider a move below $10 a kind of “endgame” moment. In fact, I would consider it an opportunity.
Unlike other SPAC deals, the underlying business here is solid. Based on the latest quarterly results published by Sofi, the fintech company seems ready to continue its rise. One day it might become one of the best digital financial supermarkets like To block (NYSE:SQ) and PayPal (NASDAQ:PYPL).
Once the market absorbs interest rate swings, continued strong results will allow SOFI stock to begin to rebound. Alongside this, other positive developments could help push prices higher, including one bolstered by higher interest rates.
Development? When Sofi gets a bank charter. This is expected to happen sometime in 2022. Obtaining a banking charter is already considered a game-changer for Sofi. But investors should also consider how the rise in rates is positive for bank profitability. Sofi’s shift to more traditional lending operations could lift it out of the red Much sooner.
Sofi is a buy if it drops again
All told, my take on Sofi Technologies is largely unchanged from previous articles. In a nutshell, waiting for another withdrawal is the best decision here. Of course, there is a risk that its current price is at its lowest. Stocks could rebound and see investors miss the rally.
Again, how more likely the market will be at least one more negative reaction to higher interest rates? The opportunity to lock in a long position in SOFI shares at lower prices looks likely. Regarding this name, wait for this moment before buying.
At the date of publication, Thomas Niel has not held (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
InvestorPlace.com contributor Thomas Niel has been writing individual stock analysis for online publications since 2016.
Buy SOFI stocks if there is another rate hike
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