SoFi Technologies, Inc. (NASDAQ:SOFI)will report earnings next week Tuesday, and the stock could fall into another down channel.
SoFi Technologies is not profitable and most likely did not profit in the third quarter. Furthermore, my previousstock pricetargetof $3.50 per share remains unchanged, implying a 32% correction potential.
With profits out of reach for at least the next few years and valuation multiples that remain unjustifiably high, investors are relying almost entirely on hope.
What Does The Market Expect For 3Q22?
According toTipranks, the market expects a loss of $0.11 per share in the third quarter.
SoFi Technologies beat consensus earnings by 9 cents in the third quarter of 2021, but the financial technology company still lost $0.05 per share.
SoFi Technologies has also been consistently unprofitable over the last year. This is highly unlikely to change in the short to medium term, in my opinion.
Investors Are Waiting For A Catalyst
SoFi Technologies' technical chart situation reveals a wait-and-see pattern that has developed over the last month or so. Many investors, who were burned by the stock in 2022, are looking for a catalyst that will send it higher. Technically, the stock is in neutral territory.
The Relative Strength Index indicates that SOFI is not oversold, and the stock is nearing a support level of $5. SOFI fell through the 50-day moving average in August and failed to recover the 50-day moving average in September.
As a result, investors appear to be waiting for information that will allow them to make a more informed decision about the company's short-term future. Catalysts for an upsurge potentially include a strong guidance for 2023 as student loan repayments resume, an increased guidance for 2022, better-than-expected adjusted EBITDA for 3Q-22 and 4Q-22, and higher profit margins.
RSI (StockCharts.com)
Guidance Will Probably Be Affirmed
SoFi Technologies, in my opinion, will reaffirm its current guidance for 2022 next week and make no changes to net revenues or adjusted EBITDA.
The current forecast for 2022 is for adjusted net revenue of around $1.51 billion and adjusted EBITDA of $104-109 million. SoFi Technologies forecasted $100-105 million in adjusted EBITDA for 2022 in the most recent quarter, and slightly increased its adjusted revenue forecast.
FY22 Non-GAAP Guidance (SoFi Technologies)
Why SoFi Technologies Is Still Expensive
SoFi Technologies' business is currently valued at 3.5x sales by investors who like the fintech. I believe SoFi Technologies' price tag is too high, given that the company has yet to generate profits and that stock performance indicates that the market overestimated the fintech's growth potential in 2021 and 2022.
SoFi Technologies is expected to increase its sales by 40% to $2.1 billion next year, according to the market. Having said that, SoFi Technologies is not expected to make a profit this year and is unlikely to do so in the next two to three years.
Until the company can demonstrate actual profitability, I believe investors will prefer to remain on the sidelines until some clear profit visibility is achieved.
PS Ratio (YCharts)
Why SOFI Stock Could See A Lower/Higher Valuation
SoFi Technologies would have to not only report exceptional member growth for the third quarter, but also present a strong forecast for 4Q-22 in order to attract buyers back into the stock.
Many investors have been burned this year after investing in SoFi Technologies, as the stock price has fallen 67% since the beginning of the year.
Unless investors see a clear path to profitability, it will be difficult for the financial technology company to reawaken investor interest in the stock.
My Conclusion
Investors are holding out hope after a negative 67% year-to-date return. SoFi is expected to reaffirm its 2022 guidance next week Tuesday, and the fourth quarter could be a reasonably strong quarter as well.
Having said that, SoFi is expected to lose money again in 3Q-22, and the financial technology company is only profitable on an adjusted EBITDA basis.
Given that SoFi is still relatively overvalued based on sales (rather than profits), the stock remains vulnerable to selling pressure in the short term, especially if the 3Q-22 earnings report disappoints.
With few to no catalysts to propel the stock higher, I believe SoFi will set new lows in the fourth quarter.
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