SoFi Technologies, Inc. (SOFI) offers digital financial services and operates through the three broad segments of Lending; Technology Platform; and Financial Services. The company provides student loans, personal loans for debt consolidation and home improvement projects, and home loans.

SOFI announced a second-quarter total net revenue of $362.53 million, up 57% year-over-year, which buoyed its stock. This topped the $344 million consensus estimate. The company reported a net loss of $95.84 million or 12 cents a share on a GAAP basis, narrowing its losses. FactSet analysts were expecting a 14 cents loss per share for the quarter. The company’s net loss and loss per share were $165.31 million and $0.48 in the prior-year quarter.

Over the past year, SOFI’s stock has declined 56.1%. It has declined 53.1% year-to-date to close its last trading session at $7.42. However, the stock has been up 23.5% over the past month.

Here are the factors that could affect SOFI’s performance in the near term:

New Exchange-Traded Fund Launch

SOFI entered the cryptocurrency play through the launch of its fund, focusing on NFTs, blockchain technology, and the metaverse. The SoFi Web 3 ETF (TWEB) tracks the SoFi Solactive ARTIS Web 3.0 Index. The company launched the Web3 fund alongside a smart energy ETF, seeking to continue building its suite of thematic products.

Negative Profit Margins

SOFI’s trailing-12-month gross profit margin of 76.37% is 20.1% higher than the industry average of 63.57%. However, its trailing-12-month net income margin of a negative 28.46% is significantly lower than the industry average of 28.09%. Its ROE and ROA of a negative 8.25% and 2.74% compare to their respective industry averages of 11.60% and 1.20%.

Stretched Valuations

In terms of its forward Price/Sales, SOFI is trading at 4.80x, 62.6% higher than the industry average of 2.95x. The stock’s forward Price/Book multiple of 1.40 is 17% higher than the industry average of 1.20.

POWR Ratings Reflect A Bleak Outlook

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

SOFI has a Quality grade of F in sync with its negative profitability margins. The stock also has a D grade for Value, consistent with its stretched valuations.

In the 108-stock Financial Services (Enterprise) industry, SOFI is ranked #107. The industry is rated F.

Click here to see the additional POWR Ratings for SOFI (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Financial Services (Enterprise) industry here.

Bottom Line

SOFI’s recent crypto ETF launch might benefit the company. However, it seems we are in the middle of the crypto winter, and given the anticipated regulations in the crypto market, I think the stock might be best avoided now. Moreover, its bleak bottom line and negative ROE are concerning.

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), which has an overall A (Strong Buy) rating, and CPI Card Group Inc. (PMTS) and Everi Holdings Inc. (EVRI), which have an overall B (Buy) rating.

SOFI shares were trading at $7.55 per share on Friday morning, up $0.13 (+1.75%). Year-to-date, SOFI has declined -52.25%, versus a -10.43% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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