SoFi's Run-Up to be Short-Lived

Jeremiah Chapter 29 verse 11 states, "For I know the plans I have for you, declares the Lord, plans to prosper you and not to harm you, plans to give you hope and a future."

This is a popular Bible verse serving with words of encouragement. It's easy to get caught up in my own world and selfishly think that if things don't go my way, that God is against me. But when I read His word, it very quickly becomes clear that this is not the case, but rather the opposite is true.

Investing is an area where if I can learn to not take things too personal in my selfish world as well, I can focus on prosperity, hope and the future opportunities. It's a matter of forgetting about what isn't going right, and shifting gears onto the big picture, key strategies, and whether these lead to any actionable moves or not.

To these points, timing is everything and Wallstreet's herd mentality can quickly serve as a catalyst for short-term SP gyrations. We need look no further than SoFi Technologies, Inc. (SOFI) to see a clear example of this. To illustrate, there's a couple of important charts to read.

1) Past month:

2) Past ten months:

The one-month chart shows a very strong performance for SoFi. What has been the catalyst? Analyst upgrades and commentary towards late-September. This was followed by a very familiar selling pressure pattern, but has been pushed higher as more analysts have jumped on board recently.

Looking from January to current and the story is a little less enticing. SoFi over the past ten months has witnessed short spikes followed by long down trends. I see today's attempt to push back towards $20 as another short spike that will witness a down trend soon after the November 11th earnings report.

I've owned SoFi in the past and it's my top performing short-term trade this year as I made a very strong return on the warrants. However, there are two concerns I have for SoFi after this year. First, I'm concerned regarding the company's acquisition of its technology platform services product. This space is getting very complicated with the Fintech stack, and while SoFi will beat initial SPAC Revenue estimates for 2021, I see slowing growth cropping up as a concern moving forward.

Second, companies like Coinbase Global (COIN) and Robinhood Markets, Ind. (HOOD) have displayed a much more robust execution of growing customer accounts. These companies will continue to penetrate more financial services that will compete directly with SoFi. This will add further pressure to the company's ambitions of growing into retail consumer segments. I see this as the largest headwind that potentially reduces the SoFi Fintech story. If SoFi is only a lender with minimal success towards other products and services, then it will no longer deserve any Fintech status.

Compounding these concerns is SoFi's horrific Cash Flow performance. Now I recognize that this is somewhat of a transition year, but if the company is unable to generate Cash Flow margins towards 25-30%, then it will have a profound negative impact on current and future valuation.

I remain interested in SoFi, but there's a lot that the company needs to prove before it can truly ascend towards 20% annualized investment returns. Investors should be wary as analysts pump SoFi prior to earnings, especially as the precedent sets the company up for a pullback.

Despite my success in trading SoFi warrants, I don't' consider myself a trader. My primary objective is to generate mid- and long-term annualized returns from 25-30%. My focus is on picking winners over time. To the points above, SoFi will continue to be monitored and scrutinized diligently - today it doesn't merit a position in the portfolio, but rather I'll remain patient in further deconstructing the Fintech industry.

6 views0 comments