As One Analyst Downgrades SoFi, I'm Upgrading My Strategy

Readers may have seen Bank of America's downgrade of Sarge favorite and former core "Stocks Under $10 Portfolio" holding SoFi Technologies SOFI. Looked ugly. Analyst Mihir Bhatia, who is rated at 4-stars by TipRanks, so he is a respected analyst, downgraded SOFI from "neutral" which we consider to be a "hold-equivalent" to "underperform," which is something that we consider to be a "sell-equivalent" rating. Bhatia also set a $12 target price on the shares. Back in late October, Bhatia had an $11 target price. Guess, he begrudgingly raised his target price.

Now, don't get me wrong. Bhatia is good at his job. According to TipRanks, over the past year, he has had a 65% success rate on his picks for an average return of 8.8%. OK, that's a little pedestrian, but 65% is very good. Funny thing about Bhatia and his vision for SOFI: On this stock, he is not very good, in my opinion. In fact, all of you who have been in this stock with me have done better. In June of 2023, Bhatia downgraded SOFI from "buy" (equivalent) to "hold" equivalent. He has never again had a buy rating or any positive rating on the stock, despite the fact that these shares traded around $9 that day and have since traded as much as 85% higher.

This is not a shot at this analyst. My point is to inform you that his downgrade last week led to a multi-dollar sell-off in response despite the fact that this analyst has been consistently wrong on this stock. We have to think for ourselves, gang. Remember, three weeks ago, the five-star rated John Hecht at Jefferies, reiterated his "buy" rating on this name, while taking his target price up to $19 from $13.

Earnings

SOFI will likely not report the fourth=quarter financial results until Jan. 29, so still another six weeks to go. Currently, Wall Street is looking for unadjusted earnings per share of $0.04 on revenue of roughly $677 million, which would be good for growth of almost 14%. That would compare to an unadjusted earnings per share of $0.02 for the year-ago comparison. Readers may recall that for the full fiscal year, the company has guided toward net revenue of $2.535 billion to $2.55 billion, above the previously issued guidance range of $2.43 billion to $2.47 billion. This implied annual revenue growth of 22% to 23%, which was up from previously issued guidance for growth of 17% to 19%. The Financial Services segment alone is now expected to grow revenue by more than 80% y/y.

Full year adjusted earnings before interest, taxes, depreciation, and amortization was boosted to $640 million to $645 million, up from prior guidance of $605 million to $615 million. Full year unadjusted net income was upped to $204 million to $206 million, up from $175 million to $185 million, as full-year unadjusted EPS was taken up to $0.11 to $0.12 from $0.09 to $0.10.

Bull Flag

Readers will see that SOFI broke out of a "Falling Wedge" pattern this past October and went on that nice run into late November that now shows as our flag. After apexing on Nov. 29, SOFI put in what we refer to as a "bull flag," which is a pattern of continuance for stocks already in strong uptrend.

Readers will see that the stock found support at its 21-day exponential moving average last week and now tries to break out past pivot. Relative Strength remains very strong, but is no longer technically overbought. But this stock's daily Moving Average Convergence Divergence is no longer the bull's friend. Those of us long the stock needs to see the histogram of the 9-day Exponential Moving Average retake the "zero-bound" and the 12-day EMA move above the 26-day EMA.

SoFi Technologies Trade

Target Price: $20 (up from $19)

Pivot: $16.61 (apex of flagpole)

Add Some: Down to 50-day SMA (currently $12.80)

Panic: On a loss of both the 50-day and 200-day SMAs.

At the time of publication, Guilfoyle was long SOFI equity.