An Investment In SoFi Stock Might Fail

Seeking Alpha2021-10-11

Summary While SoFi has a solid long-term bull case, it has several salient risks that need to be assessed. These centre on the current high valuation against what is an increasingly fearful and ...

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money2me
2021-10-11
money2me
growth company earning report usually look bad, if u believe in this fintech just HOLD.🚀🚀🚀🚀
- YiiYii:
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That is to assess what can go wrong and plan accordingly. Hence, as SoFi (SOFI) represents a significant position within my portfolio, what can fail needs to represent a leg of the bullish thesis. Failure in this sense is defined as not just negative returns but also long-term returns below the market average.\nValuation Multiple Could Face Compression In A Broader Marker Correction\nSoFi with its market cap at $12.88 billion has a price to guided fiscal 2021 sales multiple of 13.14x. A PS ratio greater than 10 is quite high for a financial services company. This sets the backdrop for a downward revaluation against a broader macro environment punctuated by fear and rising volatility. From the ongoing energy crisis to global supply chain constraints to rising supply-side inflation, the unfortunate foundations for a downward market seem to be building. These threats to the US economy could morph into a significant stock market selloff, posing a market risk for SoFi's shares as such corrections have historically punished growth stocks. It would see this current double-digit PS ratio get pulled back to the high-to-mid single digits.\nThis would translate to a market cap of under $9.6 billion, or a 25% pullback at minimum from current levels. This happened earlier this year when investor jitteriness over bond movements and interest rates led to a pullback in SoFi's valuation as capital rotated away from growth to value. As this valuation has not returned to the previous high, the stage is now being set for a further downward compounding from the plethora of crises facing a global economy just recovering from the pandemic.\nThat said, I continue to believe that SoFi's guided financial results derisk current long term holders of its common shares with its revenue set for a 39.4% compound annual growth rate from 2021 to 2025.\nSource: Author\nThis would place fiscal 2025 price to sales at just under 3.5x, a figure which would be lower if the company is able to outperform its guidance. This is very much possible on the back of the normalization of student loan repayments from the end of the moratorium on payments early next year.\nA Diversified Flywheel Strategy Or Jack Of All Trades?\nSoFi's flywheel strategy is built on offering its members a full suite of financial products that build on themselves to keep customers engaged and within the ecosystem. For example, you open a SoFi Money account to augment your current bank but end up investing in stocks, trading crypto, and buying insurance down the line because it is made available through the same platform. This increases the lifetime value of each constituent member and reduces their relevant acquisition costs.\nSoFi Consecutive Quarters Of Accelerating Member Growth\nAs at the end of its last reported quarter, SoFi had 2.56 million members, growing at triple digits year-over-year and accelerating sequentially even with increasingly larger numbers. These onboarded new members will allow for stronger future revenue growth as they become multi-product members and stay within SoFi's financial ecosystem. Hence, the bearish argument that SoFi's inability to focus on one thing is somehow a weakness strikes me as odd. It's a core part of its strategy to become a diversified financial services company, building trust and a relationship with its first offered product to drive success in the next.\nSoFi is arguably not doing enough and needs to touch on every facet of the financial lives of its members to keep them engaged and happy. This in turn will drive stronger margin expansion and future profitability. The long-term output should see a dilution of its lending segment as a per cent of revenue. As at the end of its last reported quarter it constituted 75%.\nOf course wider competition concerns from both traditional banking incumbents and new startups all vying for a slice of the fintech pie plays into the bearish narrative. You simply cannot exist alone in a space with so much future growth. This further highlights the importance of SoFi's closed-loop system in keeping members engaged and off the market. The accelerating growth in new members is a sign this is working. Further changes in the law could also affect downstream revenue. But this applies to any company within the stock market. SoFi's fiscal 2020 revenues were indeed negatively affected by pandemic spurred changes to student loan repayment, but these are all set to expire with no indication provided that there will be a renewal.\nMake Sure The Abyss Does Not Stare Back At You\nWhen one stares into the abyss, the abyss stares back at you. Hence, it is great for the long-thesis if a bull consciously chooses to fully engage with the bearish narrative yet comes out still a bull. SoFi might fail due to its current double-digit PS ratio against what is an increasingly fearful and volatile market. It would also struggle if its flywheel strategy leaves in a poorer operational state from an inability to specialize in a certain field.\nBut the inherent shortcoming of being a \"jack of all trades\" does not apply to SoFi because it is a master of its trades. This being an intimate financial ecosystem that serves the needs of its members now and in the years coming.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":828772197,"gmtCreate":1633953724382,"gmtModify":1633953724521,"author":{"id":"4087908883537940","authorId":"4087908883537940","name":"money2me","avatar":"https://static.tigerbbs.com/24ba16178b7eb0b1f8e861f82940dd5e","vip":1,"crmLevel":4,"crmLevelSwitch":0},"htmlText":"growth company earning report usually look bad, if u believe in this fintech just HOLD.🚀🚀🚀🚀","listText":"growth company earning report usually look bad, if u believe in this fintech just HOLD.🚀🚀🚀🚀","text":"growth company earning report usually look bad, if u believe in this fintech just HOLD.🚀🚀🚀🚀","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/828772197","repostId":1100350480,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":6162850,"gmtCreate":1633956288085,"gmtModify":1634716126289,"authorId":3567052123559984,"author":{"id":3567052123559984,"authorId":3567052123559984,"name":"YiiYii","avatar":"https://static.tigerbbs.com/bb10d436567743e0e60ba0933900bf20","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":828772197,"type":1,"supId":0,"prevId":0,"content":"<u>HODL</u>","text":"<u>HODL</u>","html":"<u>HODL</u>"}],"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":29,"commentSize":1,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1100350480"}