SoFi's Growth Potential Tempered by Profitability Concerns and Insider Selling

Introduction

SoFi Technologies, Inc. (SOFI) is a technology-driven financial services platform headquartered in San Francisco, California. The company operates on the Nasdaq exchange and provides a range of financial products including loans, wealth management, and insurance.

Fundamental Analysis

For SoFi, the company has a market capitalization of $7.10 billion with 957.86 million shares outstanding. Despite posting a record-breaking quarter with all business segments in growth mode, the company has a negative earnings per share (EPS) of -0.45 and a negative price-to-earnings (P/E) ratio of -16.49, which raises concerns about its profitability. This may be due in part to the significant sales from company insiders recently, a development that was disclosed after the market closed.

The company is expected to announce its earnings on January 29, 2024, which provides investors an opportunity to track the company's progress towards profitability. The discounted cash flow (DCF), which is a valuation method used to estimate the attractiveness of an investment opportunity, for SoFi is determined at $8.99. Analysts have set a high target price for the stock at $22 and a low target price at $2.5, with a median target of $8.

Technical Analysis

As of the last close on November 07, 2023, SoFi was trading at $7.42, a decrease of 0.93%. The stock has a 50-day moving average (MA) at $8.04 and a 200-day MA at $7.34. The moving average convergence divergence (MACD), typically used to predict price changes, for the past three months is -0.24.

The stock also has a current relative strength index (RSI) of 45. RSI is a momentum oscillator that measures the speed and change of price movements. An RSI value below 30 is generally interpreted as indicating an oversold or undervalued condition that may signal a trend change or corrective price reversal to the upside. Similarly, an RSI reading above 70 is typically viewed as overbought or overvalued, which could foreshadow a trend change or corrective price reversal to the downside.

SoFi's current support level, the price at which demand is thought to be strong enough to prevent the price from declining further, stands at $6.94. The resistance level, which is the price level at which selling is thought to be strong enough to prevent the price from rising further, stands at $7.55.

News Influences

Recent news reports indicate that SoFi is on track for positive growth, entering a profitable territory with all business segments. However, the company has faced some setbacks, with reports on SoFi's Chief Risk Officer Aaron Webster selling a significant proportion of SoFi stocks.

Prediction and Recommendation

Considering the above analysis, and even though the company has been performing well in terms of growth, the negative EPS and P/E ratio may be alarming to some investors. It's expected that the stock may trade around its 50-day moving average of $8.04 in the next trading day and likely to oscillate around this level for the upcoming week.

If the company can maintain its growth trajectory, it is expected that the share price could move towards its resistance level of $7.55 and possibly higher towards its DCF of $8.99, presenting a potential upside. However, the stock may retreat to its support level of $6.94 if the selling pressure increases.

Given the detailed analysis, and in view of the mid-term to long-term perspective, it is advised to categorise SoFi as a 'Hold'. This is based on the company's strong growth prospects, which are offset by concerns about profitability and insider selling. Investors should closely watch upcoming earnings and other announcements to further assess the company's situation and prospects.