Here’s How I’d Invest in Fintech Disruptor SOFI Stock

Fintech stock SoFi Technologies (NASDAQ:SOFI) has been on investors’ radar since even before making its public markets debut in June 2021 through a reverse-merger with a special purpose acquisition company (SPAC). Initially, SOFI stock ran up to $24.95, after which bears got the upper hand.

the Social Finance (SoFi stock) logo is displayed on a smartphone.

Source: rafapress / Shutterstock.com

But in August, SOFI shares saw a multi-month low of $13.56. They have since staged an impressive rally and are up over 50%, currently hovering around $20. The current market capitalization stands just under $16 billion.

Today’s article looks at what might be in store for SOFI stock and how investors could still make money from SoFi Technologies.

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SOFI Stock Quarterly Results

The company behind SOFI stock was launched in 2011 as a student loan refinancing firm. It has grown to become a fintech disruptor. Now, management describes the company’s mission assisting individuals to “reach financial independence to realize their ambitions,” by making their money “work for the life they want to live.”

SoFi Technologies issued mixed second-quarter results in August. Adjusted net revenue was $237.2 million up 74% year-over-year. Member growth was also up 113% YOY, thanks to a growing number of brokerage accounts.

On the results, CEO Anthony Noto cited, “The second quarter proved to be another quarter full of milestones for SoFi… We exceeded our financial expectations, delivering record adjusted quarterly net revenue and our fourth consecutive quarter of positive adjusted EBITDA.”

Despite his upbeat words, management’s guidance for revenue in Q3 came between $245 million and $255 million, versus estimates of $270 million. The poor projection led to an initial sharp sell-off in August, followed by the recent run-up in price.

Adding SOFI Stock to Portfolios

Despite the lukewarm results in Q2, SoFi Technologies is working on becoming a one-stop platform with a diverse mix of financial service offerings. Its membership base and revenue are on the rise. As a young public company, it is likely to reach numerous milestones as well as face hurdles in future quarters. However, I believe, long-term investors with a two-to-three-year horizon can consider investing around these levels.

Among six analysts polled, SOFI stock has a “buy” rating. Also, the consensus is for a 12-month median price target of $25, implying a return of over 22% from current levels. The 12-month price range currently stands between $18 and $31. Therefore, buy-and-hold investors could consider investing in SOFI stock if the price continues to decline, especially toward the $20 level.

Alternatively, you could consider buying an exchange-traded fund (ETF) that has SoFi Technologies stock as a sizable holding. Examples include the iShares Morningstar Small-Cap ETF (NYSEARCA:ISCB), the JPMorgan BetaBuilders U.S. Small Cap Equity ETF (NYSEARCA:BBSC), or the De-SPAC ETF (NYSEARCA:DSPC). All of those ETFs have SOFI stock among their top five holdings.

Consider Cash-Secured Put Options on SoFi Stock

Those readers who are experienced in options could also consider selling cash-secured put options. Such a strategy would be appropriate if you are slightly bullish or neutral on SOFI stock at this time. The increase in implied volatility (IV) levels during the earnings season makes this strategy a potentially viable one to consider.

Selling cash-secured put options generates income as the seller receives a premium. As I write now, SOFI stock is around $20.60. The trade would be to sell the Nov. 19 expiry $20 puts. And the current option premium is $1.55. Therefore, the maximum return for the seller on the day of expiry would be $155, excluding trading commissions and costs.

If the put option is in the money (meaning the market price of SoFi Technologies stock is lower than the strike price of $20), any time before or at expiration on Nov. 19, this put option can be assigned. The seller would then be obligated to buy 100 shares of SOFI stock at the put option strike price of $20 (i.e., at a total of $2,000).

In that case, the trader ends up owning SOFI stock cheaper than the current level of around $20.60. The breakeven point for this example is the strike price ($20) less the option premium received ($1.55), i.e., $18.45. This is the price at which the seller would start to incur a loss.

On a final note, the calculation of the maximum loss assumes the put seller was assigned the option and purchased 100 shares of SoFi at the strike price of $20. Then, in theory, the stock could fall to zero.

If the put seller gets assigned the option, the maximum risk is similar to that of stock ownership but partially offset by the premium (of $155) received.

The Bottom Line

SoFi Technologies is a young name in the fintech space, and it continues to grow operations. The company can potentially become a leading player within the decade. We’re likely to see many more quarters of revenue increase.

Meanwhile, as a fintech platform that offers numerous digital services, SoFi Technologies can possibly find itself as a takeover candidate. Therefore, long-term investors who are not worried about daily moves in price could consider owning the shares around $20.

On the date of publication, Tezcan Gecgil did not have (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.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.