Penny Stocks: Is SOFI A Stock To Consider Investing In?

Penny Stocks: SoFi Technologies (SOFI), a provider of financial services, saw impressive growth across all of its business divisions. However, due to the company’s weak fundamentals and potential recessionary pressures, analysts appear pessimistic about its prospects for earnings growth. Is it wise to purchase this under $5 fintech stock? 

SoFi Technologies, Inc. (SOFI), a provider of digital financial services, released financial results for the third quarter that showed brisk growth in members, products, and cross-buy. To end the quarter with 4.7 million total members—a 61% annual increase—the company added 424,000 new members. Additionally, SOFI finished with roughly 7.2 million total products, up 69% from the previous year.

According to CEO Anthony Noto, the third quarter’s record adjusted net revenue of $419 million and record adjusted EBITDA of over $44 million were driven by strength across all three of SOFI’s business segments.

Even though SOFI’s growth in the third quarter was strong, its losses started growing. The company’s net loss increased to $74.21 million in the same quarter last year from $30.05 million. Its loss per share increased to $0.09, an 80% year-over-year worsening.

The federal student loan moratorium that the Biden administration extended in November continues to harm the digital bank. With $457.18 million, student loan originations in the third quarter were down 53% from last year’s period. In addition, the volume of home loans originated fell by 73% year over year to $216.25 million. The company’s loan book was impacted because of the housing market’s difficulties and the rise in interest rates.

SOFI is now a penny stock after losing 71.3% over the previous 12 months. Its current price is 72.7% below the $16.47 52-week high it reached on January 20, 2022. The stock’s steep decline is blamed on the company’s poor fundamentals and escalating recessionary fears.

What follows are some factors I believe could affect SOFI’s performance in the upcoming months:

Mixed Financials

Total net revenue for SOFI for the third quarter of fiscal 2022, which ended on September 30, increased by 55.9% year over year to $423.99 million. Its adjusted EBITDA totaled $44.30 million, a 331.9% increase from the previous year. However, the company’s net loss increased to $74.21 million compared to the same quarter last year from $30.05 million.

Additionally, SOFI’s loss per share increased by 80% year over year to $0.09 as well. The total liabilities of SOFI were $10.33 billion as of September 30, 2022, compared to $4.48 billion as of December 31, 2021.

Also Read,

Axis Bank Will Use Discounted Cash Flow To Acquire The Remaining Max Financial Stake

Weak Growth Prospects

Analysts predict that fourth-quarter revenue will rise by 52.1% over the previous year to $425.59 million (ending December 31, 2022). However, for the current quarter, the company is anticipated to report a loss per share of $0.07. Additionally, analysts anticipate that the company will post losses per share of $0.35 and $0.17 for the fiscal years 2022 and 2023, respectively.

Low Profitability

SOFI’s negative 28.81% trailing-12-month net income margin is lower than the 27.80% industry average. Additionally, compared to the industry averages of 11.55% and 1.16%, its trailing-12-month ROCE and ROTA are negative at 9.16% and 2.47%, respectively.

In addition, the stock’s trailing-12-month asset turnover ratio, which is 0.11%, is 40.5% lower than the industry standard, which is 0.19%.

POWR Ratings Reflect Bleak Prospects

In our unique POWR Ratings system, SOFI’s overall F rating translates to a Strong Sell. The POWR Ratings are determined by considering 118 different variables, each given the ideal amount of weight.Each stock is also assessed using our unique rating system’s eight categories. The stability rating for SOFI is F. The stability grade is supported by the stock’s beta of 1.33. Additionally, it receives an F for Quality, consistent with profitability metrics below the industry average.

Beyond what is already mentioned, we have graded SOFI for Sentiment, Growth, Value, and Momentum. SOFI is ranked #96 out of 100 stocks in the F-rated Financial Services (Enterprise) industry.

Bottom Line

The third quarter of fiscal 2022 saw SOFI, a fintech company, make significant progress, but its losses began growing. Additionally, analysts anticipate the company will experience significant losses in the fiscal years 2022 and 2023 due to the student loan moratorium’s likely negative effects on its core business and the expected decline in home loan originations caused by the environment of rising interest rates.

The stock is currently downtrending as it is trading below its 50-day and 200-day moving averages, which are $4.92 and $6.20, respectively. We believe it might be a good idea to steer clear of this penny stock right now, given SOFI’s declining financials, bleak growth prospects, and low profitability.

Also Read,

NFO Launch – DSP CRISIL SDL Plus G -Sec Apr 2033 50:50 Fund Is Now Open For Subscription