Here’s why investors are revising their prices SoFi Technologies, Inc. (NASDAQ:SOFI)

SoFi Technologies, Inc. (NASDAQ:SOFI) approaching its all-time low, and we wonder if the company has enough future earning power to recover, or if the current climate has changed the outlook. In this article, we will estimate what the company is expected to do analysts vs what it should do given the current price.

For a quick overview of the results of our analysis, here are the main takeaways:

  • The market expects SoFi to make about $300 million in profit in 2024.
  • Analysts forecast earnings of $136 million in 2024, but risk-return demands from marginal investors are increasing demand for higher earnings sooner than before.
  • Rising interest rates can impact why investors are demanding more and the stock is falling.

As you can see, fundamentals matter and we will review SoFi’s past and expected performance.

Implied earnings

When we have a young company, without a reliable valuation, we can look to market capitalization and use that to see what the implied earnings are after a certain period. We do this calculation for find out what is “valued” by the market.

The company currently has a market capitalization of $6.8 billion (intraday), which implies that it makes a profit of US$302.6 million in fiscal year 2024.

We can calculate this by taking the market cap, time-weighting it by the cost of equity 3 years from now, and multiplying by the cost of equity to arrive at the implied earnings.

Calculation: 6.8 ÷ 0.872 × 0.0388 = 302.6

We see that, given the current market value (stock price), the company needs to make just over US$300 million in 3 years to justify today’s price.

We will now compare this with analyst forecasts and measure the difference.

Check out our latest analysis for SoFi Technologies

According to the 13 industry analysts covering SoFi Technologies, the consensus is that the company will start generating positive profits of US$136 million in 2024.

While it’s great that the company will be profitable in just over 2 years, our calculations suggest that the current stock price has an additional $166.5 million of required or “embedded” earnings. It’s by no means over, as the company can make up that difference with profits even further into the future. What we are currently seeing in price declines may be a change in patience on the part of investors, more than a change in expectations.

This change in patience or appetite for risk, may come from an increase in inflationwhat has an impact discount percentages used in the calculation of returns required by investors.

Break even

Profitability can be an important catalyst for a stock, as it confirms that a company can serve a market and can capture some of the value created.

How fast will the business need to grow each year to break even by 2024?

Working backwards from analysts’ estimates, it turns out they expect the company to grow 67% year-over-year, on average, which signals high analyst confidence and shows the breakeven point in 2024.

If this rate turns out to be too aggressive, the company may become profitable much later than analysts expected and possibly prolong the decline in value.

NasdaqGS:SOFI Revenue Growth Forecast April 6, 2022

Since this is a high-level preview, we won’t go into details about SoFi Technologies’ upcoming projects, However, remember that overall a high growth rate is not exceptional, especially when a company is in a period of investment.

Next steps:

For investors who believe in this industry and believe that digital lending and financial services can create value for the future, they can check out some of SoFi’s competitors:

sofi-peers
NasdaqGS: peers selected by SOFI, April 6, 2022

This article is not intended to be a full analysis on SoFi Technologies, so if you want to understand the company on a deeper level, take a look at SoFi Technologies’ corporate page on Simply Wall St. We have also compiled a list of relevant aspects you should investigate further:

  1. Historical review: How has SoFi Technologies performed in the past? Go deeper into the analysis of past history and take a look at the free visual representations of our analysis for clarity.
  2. Management team: An experienced leadership team at the helm bolsters our confidence in the company – look at who sits on the SoFi Technologies board and the CEO journey.
  3. Other High Performing Stocks: Are there other stocks that offer better prospects with a proven track record? Explore our free list of these great stocks here.

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position at any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials.