Between June 2020 and December 2021, either via IPOs or the SPAC route, 24 fintech companies went public. It has been a bruising introduction, however. Since going public, the majority have endured steep share price losses.
MoffettNathanson analyst Eugene Simuni lays part of the blame on macro headwinds such as interest rates, inflation, and a ‘risk-off’ mood. However, given the “ferocious” nature of the selloff in fintech names, the analyst thinks the sector wide pullback is “entirely tied to investors’ loss of confidence in the long-term growth potential (and profitability prospects) of Fintech disruptors.”
Of course, battered stocks do not equate broken companies and interestingly, says Simuni, the struggles are not necessarily linked to “operational underperformance.”
In fact, the analyst sees several fintech names which are well-positioned to take market share. One of which is SoFi Technologies (SOFI), whose shares have taken a hammering since the June 2021 debut (down by 60%).
Simuni calls SoFi a “diversified provider of digital financial services with three distinct pillars.”
Leading the way and generating 75% of revenue is the lending business, the fintech infrastructure business brings in 20% of revenue while the digital banking business accounts for ~5%.
Although Simuni believes each part is exposed to “distinct sets of risks and opportunities,” the analyst believes that, put together, the company’s “portfolio of assets currently offers an attractive risk/return profile.”
The digital banking business might be a risky start-up but has “tremendous upside potential,” while the infrastructure business generates “highly recurring revenue streams” and offers the company entry into the global fintech market.
And promisingly, Simuni thinks the most immediate threat is “not as risky as it appears.” This pertains to the extension of the Federal student loans payments moratorium, which has been extended to the end of August from the prior May expiry date. While the refinancing of Federal student loans is an “important driver” of SoFi’s loan originations, the company offers private student loans too and with a total book of ~$7.5 billion is one of the personal loan market’s leaders. The company also has a “rapidly growing presence in the mortgage market (~$5 billion total book).” In any case, the analyst reckons that an extension of the moratorium through the end of the year is “already priced into the stock.”
So, promising for the banking disruptor but what does it all mean for investors? Simuni initiated coverage on SOFI with a Buy rating and $13 price target. This target puts the upside potential at ~52% from current levels.
Overall, SOFI holds a Moderate Buy rating from the analyst consensus, with 13 reviews on record, which include 7 Buys and 6 Holds. SOFI is selling for $8.54 and the $16.50 average price target implies ~93% upside from that level. (See SOFI stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
