Buy or Sell SOFI Stock? Breaking Down Its New Beginning

Stock Market

The SPAC train may have been derailed a bit by the sell-off in high-growth stocks, but that doesn’t mean every SPAC is a sell. Take SoFi Technologies (NASDAQ:SOFI) for instance. SoFi stock is a growing fintech company with plenty of opportunity ahead of it.

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However, shares have struggled over the last few months. The stock topped out on Feb. 1 near $28 and quickly retreated below $20.

That decline came as other high-growth stocks came under pressure. High-quality companies like Square (NYSE:SQ) and Roku (NASDAQ:ROKU) suffered declines of about 30% to 40%. Lower quality growth stocks saw declines of 65% and more.

SoFi still has risks. It didn’t help that it’s a SPAC and after a hot ride, SPAC stocks are getting hammered. But let’s look at some of the risks a bit more closely.

SoFi Has Risks

On June 1, SoFi Technologies went from IPOE stock to trading under its new ticker, SOFI stock. The company received enough votes for its takeover to occur, eliminating the risk that the deal falls through. 

That risk is now eliminated. What else is there? The SEC is one. 

That’s never something you want to see. About a month ago, Mark Hake wrote about this issue on InvestorPlace. He said, “The increased scrutiny by the SEC could have a general dampening effect on IPOE stock for a while.” 

However, he also backed up IPOE stock by saying:

The SEC’s change for warrants doesn’t prevent them from finding issues with SPACs’ potentially overly optimistic forecasts. In this regard, IPOE did not change its forecast for EBITDA profits this year and next year. This shows that SOFI must be pretty confident about its forecasts.

In fact, he summed up best by saying: “For most people, this is arcane accounting nonsense. Frankly, I don’t even understand what the fuss is all about with the SEC’s revisions.”

Still, the SEC is never something you want to hear about one of your investments and like Hake says, it could have a dampening effect on SOFI stock. 

But There’s Also Huge Potential Opportunity

SoFi is an online personal finance company based in San Francisco and offers various products. That’s everything from student loan refinancing, personal loans, mortgages, investing (including crypto) and banking. 

As of now, banking makes up a majority of the company’s revenue — something the Street seems to be brushing off as the company pursues more attractive businesses. 

According to the company, management expects very strong growth. 

SoFi is aiming for $3.7 billion in revenue for 2025. That’s a pretty big improvement from the company’s $621 million in sales for 2020. After losing money in 2020, SoFi expects to be profitable on an adjusted EBITDA basis this year, while generating more than $1 billion in adjusted EBITDA by 2025. 

Of course, these are just estimates and not just estimates, but estimates all the way for 2025. In that vein, IPOE represents huge potential, but it also represents risks. In my opinion, the risk of SoFi being overly aggressive on its forward estimates is larger than the risk of the SEC. 

However, if the company can deliver in-line results or even exceed these estimates, the stock could be considerably higher than current prices. In all of these senses (and SoFi’s plan for a wide-reaching business), it reminds me of Square or PayPal (NASDAQ:PYPL). 

Bottom Line on IPOE Stock

Whether SoFi delivers on its long-term goals won’t be known for quite some time. However, I do believe the company has strong growth ahead of it in the years to come. 

At some point, that means there should be value in the stock. 

Shares were recently trading near $15 and threatening to break down to the March low around $13. However, SOFI stock held firm near $15 and was able to turn higher. The stock then rallied in eight straight sessions, reclaiming the 21-week moving average in the process. 

That moving average then turned to support, as SoFi struggled with $20. Once receiving enough votes to complete the transaction, shares ripped higher. At the recent high, the stock tagged $25. 

After backing off that level, I want to see if Sofi can hold up above $22.50. Not only has this level been important in the past, but it also comes into play around the 61.8% retracement. If it can hold up above this level until some of its shorter-term moving averages catch up, $25-plus could be back in play.

On the downside, a break of the 10-day moving averages could put $20 in play. Below that and a test of the 50-day moving average is possible. 

On the date of publication, Bret Kenwell held a long position in ROKU. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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