Recently, digital financial services provider SoFi Technologies, Inc.’s (SOFI) shares rocketed after Anthony Noto, the CEO, disclosed a whopping $5 million purchase of the company’s stock. The company also reported better-than-expected third-quarter results.

However, the fintech firm may face headwinds related to its cryptocurrency operations. A group of senators, who are now scrutinizing the crypto industry following the FTX blowup, sent a letter to SOFI, requesting to review the neo-banking firm’s cryptocurrency-market dealings.

Moreover, the Biden-Harris Administration’s federal student loan repayment requirement moratorium has had a catastrophic effect on SOFI as its student loans declined 52.8% year-over-year to $457.18 million in the third quarter. Moreover, as the student loan repayment pause has been extended yet again, the company’s student loan financing volume is likely to be low for most of 2023.

SOFI has been on a downtrend. It has lost 69.8% over the past year and 72% year-to-date, closing the last trading session at $4.43. It is trading 71.9% below its 52-week high.

Here is what could shape SOFI’s performance in the near term:

Poor Financials

For the third quarter that ended September 30, 2022, SOFI’s interest expense rose 89.3% year-over-year to $40.19 million, while its non-interest expense increased 65.1% year-over-year to $498.43 million.

Its net loss rose 147% year-over-year to $74.21 million, while its loss per share grew 80% year-over-year to $0.09. Also, its cost of operations increased 19.4% year-over-year to $83.08 million in the third quarter.

Poor Profitability

SOFI’s trailing-12-month net income margin of negative 28.81% is lower than the industry average of 27.80%. Its trailing-12-month asset turnover ratio of 0.11% is 40.54% lower than the 0.19% industry average.

Additionally, its trailing-12-month ROCE and ROTA of negative 9.16% and 2.47% are lower than the industry averages of 11.55% and 1.16%, respectively.

POWR Ratings Reflect Bleak Prospects

SOFI has an overall F rating, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SOFI has an F grade for Quality, consistent with its negative profitability margins.

Its F grade in Stability is in sync with its high 24-month beta of 1.32, and its falling share prices justify its D grade in Momentum.

In the F-rated Financial Services (Enterprise) industry, SOFI is ranked #103 out of 104 stocks.

Click here for the additional POWR Ratings for SOFI for Growth, Value, and Sentiment.

Bottom Line

The stock is trading below its 50-day and 200-day moving averages of $5.01 and $6.40. Moreover, amid the business-related headwinds, SOFI will likely stay on this downward trajectory in the near term. Also, given its negative profitability and bleak financials, it could be best to avoid the stock.

How Does SoFi Technologies, Inc. (SOFI) Stack up Against Its Peers?

While SOFI has an overall POWR Rating of F, one might consider looking at its industry peers, Forrester Research, Inc. (FORR), MGIC Investment Corporation (MTG), South Plains Financial, Inc. (SPFI), and CPI Card Group Inc. (PMTS), which have an overall A (Strong Buy) or B (Buy) rating.

SOFI shares were trading at $4.61 per share on Tuesday morning, up $0.18 (+4.06%). Year-to-date, SOFI has declined -70.84%, versus a -18.66% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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