Take profits on SoFi after recent rally, KBW says

Published Tue, Aug 1 20236:05 AM EDT

Investors should sell their SoFi holdings after the stock has more than doubled in just a few months, KBW said. Analyst Michael Perito downgraded the financial technology stock to underperform from market perform while simultaneously hiking his price target for shares by $2 to $7.50. Still, Perito's new price target implies shares could tumble 34.5% from where they finished Monday. "We believe valuation has overshot the fundamental earnings outlook," Perito said in a note to clients Monday. Shares slid 3.3% in premarket trading Tuesday. That marks a reversal after the stock rallied 19.9% on Monday, following the release of its second-quarter earnings. SoFi posted a loss of 6 cents per share when accounting for GAAP, while analysts polled by FactSet forecasted 7 cents lost per share. The company also raised its expectations for full-year earnings. Shares are trading at more than 30-times to the high end of their EBITDA target range for this year, which he said was one of the highest valuations for a financial covered by KBW and "difficult to fundamentally justify." Though the compound annual growth rate can support a premium-level valuation between 2021 and 2024, he said revenue will come in softer than peers on Wall Street expect, and that could pose challenges. But he did note the company can see several years of "industry-leading revenue growth" after its product work in the financial services businesses, which can also be boosted by a recovery in loan originations. SOFI YTD mountain SoFi's 2023 And while there may not be a near-term catalyst to the downside, Perito said the risks can outweigh the rewards when it comes to earnings. Those risks are tied to pressured loan fair values, higher hedging gains or an external infusion of capital. "Overall, we believe investors face a unique set of risks this early on in such a high-growth story, and see the upside/downside as negatively biased after recent outperformance in 2Q23," he said. Elsewhere, he raised his bottom-line expectations for 2024 to come reflect a loss of 3 cents per share, narrower than the 5 cents previously anticipated. He said the company could breakeven on earnings in the second quarter of the year and even move from losses to earnings on the bottom line in the second half. — CNBC's Michael Bloom contributed to this report.