Stock Market

After more than a year at sub-$10 per share prices, including a brief trip to penny stock territory, SoFi Technologies (NASDAQ:SOFI) shares are back in the double-digits. Chalk this all up to a well-received earnings late last month for SOFI stock.

However, almost as quickly as they spiked back into the low-teens, shares in this fintech/neobank may be gearing up for a return to sub-$10 per share prices. So, is it time to take profit if you own SOFI and steer clear if you don’t own it?

Not quite. There’s still plenty on the table for those who dived into this “future of finance” play when it was fully out of favor.

But if you have been mulling whether to add it to your portfolio, or if you are interested in increasing your exposure, now is not the time to buy. Here’s why.

SOFI Stock and its Strong Post-Earnings Surge

On July 31, SoFi Technologies released its results for the quarter ending June 30, 2023. For the period, the digital-first financial institution reported revenue ($498 million).

SoFi’s top line represented year-over-year growth of 37%, and came in ahead of sell-side forecasts. Reported net losses of 6 cents per share also came in narrower than analyst consensus.

However, it was likely not these slightly better-than-expected results that caused SOFI stock to spike by nearly 20% on earnings day.

Rather, much as with prior earnings releases from this company, it was other key performance indicators along with updates to guidance that drove this latest post-earnings surge.

In the earnings press release, CEO Anthony Noto stated that SoFi’s membership base is up 44% YoY. Total deposits increased 26% over the past quarter. With this strong growth across-the-board, the company once again raised its full-year 2023 outlook, albeit slightly.

SoFi also reiterated that it expects to hit GAAP profitability by Q4 2023. Yet while all of this positive news was enough to briefly send SOFI back to as much as $11.70 per share, the stock has slipped back to just over $10 per share, and could keep dropping.

Why this Surge is Morphing into a Slide

There are many reasons the post-earnings surge for SOFI stock is morphing into a slide, and why this slide could carry on in the near term. For one, according to Fintel, around 15.5% of the stock’s outstanding float was sold short, as of Monday’s earnings release.

While not for certain, it’s possible that either speculators dived strongly into SOFI after the strong results hit the street, hoping to cause a short-squeeze, or in response to well-received earnings, the crowded short side started scrambling to close out positions.

A potential easing of “squeeze mania” may explain why shares slid lower, and may continue to do so.

Besides the squeeze factor, based on this stock’s history of making big moves after earnings, some may have bought SoFi Technologies just to flip it after the release. This hasty taking of profit could continue, and apply more pressure on shares.

Finally, with this latest big run-up, there are renewed valuation concerns. For instance, analysts at Keefe Bruyette downgraded SOFI on Aug. 1, arguing that while things are moving along for the company, its shares have moved up too far, too fast. The market may come to the same conclusion.

The Silver Lining

While SOFI’s short-lived spike may be disappointing, there’s a silver lining. A more attractive entry point for a new or increased position could be just around the corner. The aforementioned factors may push shares back to the high single-digits.

Why would you want to buy SoFi on the pullback? The “liftoff moment” for this fintech upstart is only starting to emerge.

As Louis Navellier and the InvestorPlace Research Team pointed out last month, sustaining double-digit revenue growth and getting to positive earnings will likely enable a return to double-digit price levels.

If SoFi’s focus on winning over affluent customers with better service pays off, becoming a big bank itself is within reach. This would undoubtedly justify a steady uptick in price, back toward even higher price levels.

Be careful for now, but consider any sharp drop from here a golden opportunity to make/increase a long-term wager on SOFI stock.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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