SoFi Technologies (NASDAQ:SOFI) has come a long way from its early days as an up-and-coming personal-finance app. Now, SoFi is a legitimate bank and a respected lender. The market is still deciding on the SOFI stock price, which will likely be in the double digits soon.
As the stock hops around, you might wonder whether SoFi really has what it takes to be a winner. Indeed, a recent capital-raising effort might cause you to wonder about SoFi. Don’t overlook this issue, but it’s not a deal breaker for SoFi Technologies investors.
Why Has SoFi Stock Been So Shaky Lately?
SoFi stock has been above $10 before, but lately it’s been chopping around and can’t seem to get off the ground. That’s frustrating, but it’s not difficult to identify the main reason for the market’s mixed feelings about SoFi Technologies.
You might assume that stock traders are worried about how the government’s student-loan forgiveness might affect SoFi Technologies.
However, SoFi doesn’t only make money from refinancing student-loan debt. The company also offers other types of loans; plus, SoFi has a financial-services segment as well as a technology platform.
What’s really been bothering investors lately is SoFi Technologies’ recent announcement of a capital raise. Specifically, the company plans to issue and sell $750 million worth of convertible senior notes.
This news sent SoFi stock 15% lower due to concerns that SoFi might engage in share-dilutive capital raises in the future.
That’s a reasonable concern. However, Oppenheimer analysts feels that SoFi Technologies will get a “pretty good deal overall” with the convertible senior notes.
Hopefully, SoFi will use the money wisely and refrain from doing what the market fears – i.e., diluting shares through future capital-raising efforts.
This Analyst Called SoFi Technologies a ‘Long-Term Winner’
Evidently, at least one expert on Wall Street isn’t too worried about SoFi Technologies’ debt issuance. In fact, Needham analyst Kyle Peterson initiated his coverage of SoFi stock with a “buy” rating and an optimistic price target of $10.
It’s understandable if Peterson is bullish about SoFi Technologies, especially after the company posted a profitable quarter in the fourth quarter of 2023. That’s actually the first profitable quarter in SoFi’s history.
What really seals the deal for Peterson, though, is the fact that SoFi Technologies has a valid U.S. banking license.
“We view SOFI as a long-term winner in the digital lending/neobank space, largely due to its focus on prime and super-prime consumers and possession of a full banking license,” Peterson said, “which we believe provides the company superior unit economics compared to other consumer finance platforms that focus on lower income borrowers and/or lack a banking license.”
There’s a lot packed into that single sentence. I agree with Peterson’s idea that it’s advantageous for SoFi to hold a national banking charter. This means, among other things, that SoFi Technologies can focus on high-quality borrowers.
Not to sound elitist, but there are risks associated with lending to lower-income borrowers. Can SoFi Technologies successfully target a higher-income demographic?
If so, then the company could substantially boost its lending-segment revenue with less risk.
SoFi Stock: Set Your Sights on $10
Investors should be aware of SoFi Technologies’ debt-issuance announcement, but they don’t have to consider it a deal breaker. After all, SoFi is growing into a multifaceted financial institution, and raising capital is a normal part of that process.
Overall, there’s risk but also substantial potential rewards for forward-looking SoFi Technologies investors. So, if you agree that SoFi stock is a “long-term winner,” feel free to buy a few shares. Then get ready for $10, after which the sky will truly be the limit.
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.