At long last, SoFi Technologies (NASDAQ:SOFI) is getting some love from financial traders. However, several analysts are waving red flags now. Instead of jumping into a hasty trade with SOFI stock, the best strategy is to be patient and let buying pressure cool down for a while.
My position on SoFi Technologies as an investable business has been consistently bullish for the long term but cautious in the short term. I’m sticking to that stance, as SoFi Technologies represents the future of technology-based banking, but traders shouldn’t chase any stock that’s gone up too far, too fast.
Why Did SOFI Stock Double in Price This Year?
Speaking of too far and too fast, SOFI stock rallied from $4.50 at the beginning of this year to nearly $10 in mid-June. That’s a share price doubling in less than half a year.
Even if you like the company, it’s difficult to justify the extreme short-term optimism as SoFi Technologies is a consistently unprofitable business. So, what caused the stock to shoot to the moon?
2023 has been a strong year for stocks generally, but there’s more to the story than that. Some of SoFi Technologies’ revenue is derived from refinancing student loan repayments. Hence, SOFI stock jumped when debt ceiling legislation negotiations included provisions that would reinstate required repayments for federal student loans.
Most likely, financial traders have also favored SoFi Technologies this year because the company survived while several regional banks failed. Still, careful investors might question whether these factors should justify a +100% move in the SoFi Technologies share price.
SoFi Technologies Gets Three Downgrades
Of course, I’m not the only commentator having these thoughts. Indeed, there are at least three notable analysts who have recently expressed caution about SoFi Technologies.
First, Piper Sandler analyst Kevin Barker downgraded SOFI stock from “overweight” to “neutral.” Barker explained, “The change in our rating is primarily due to valuation.”
Meanwhile, Oppenheimer analyst Dominick Gabriele downgraded SoFi Technologies shares from “outperform” to “perform” based on the “epic” year-to-date share-price rally. Are we starting to discern a theme here?
Additionally, Bank of America Global Research analyst Mihir Bhatia downgraded SOFI stock from “buy” to “neutral.” Bhatia clarified, “While we agree the payment moratorium expiry is a positive, we now see the positive fundamental aspects of the story as largely priced in.”
In other words, some of Wall Street’s prominent experts are concerned that the positive news pertaining to SoFi Technologies (regarding student loans or any other factor) has already been baked into the proverbial pie. Therefore, if you choose to invest in SoFi Technologies now, you may be late to the party. Truly, the last thing any investor needs is to end up on the wrong side of a potential pop-and-drop.
What To Do With SOFI Stock
Sometimes, it’s perfectly fine to ignore analysts’ downgrades. In this case, however, the frothy trader sentiment surrounding SoFi Technologies is a legitimate concern.
So, what should investors do? The answer is, you don’t have to do anything right now. Patience is a virtue, especially when a stock has rallied sharply and is susceptible to a pullback.
Thus, it makes sense to wait until SOFI stock eases back to $6 before taking or adding to a long position. This is a bullish strategy for people who still believe in SoFi Technologies for the long term. It’s just a matter of entering the trade at the right time, and at a more reasonable price.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.