SoFi Technologies Has Back-End Risks, It's Difficult To Justify Owning It: Analyst

Shares of SoFi Technologies Inc SOFI tanked in early trading on Friday, amid analyst downgrades last week.

Although the San Francisco-based company has grown significantly so far, capital constraints will likely restrict growth in fiscal 2024, according to Compass Point.

The Analyst: Giuliano Bologna initiated coverage of SoFi Technologies with a Sell rating and a price target of $5.

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The Thesis: The company’s accounting treatment for personal and student loans drove growth earlier, but this creates a “back-end margin overhang that could be compounded if balance sheet growth slows as we expect it will during FY23/FY24,” Bologna said in the initiation note.

“With the potential for the balance sheet growth rate to slow over the next few quarters and credit costs to increase materially with portfolio seasoning before accounting for credit deterioration risks, we believe it’s difficult to justify owning SOFI at current levels,” the analyst wrote.

The rally in the company’s stock after the debt ceiling resolution seems to be “overdone,” he added.

SOFI Price Action: Shares of SoFi Technologies had declined by 8.60% to $7.76 at the time of publishing Friday.