Why Is SoFi Stock Crashing? A Generational Buying Opportunity?

AI-generated source summary

SOFI's stock price has experienced a significant decline, down 15% last month, 45% this year, and 55% from its November high. This drop is attributed to rising interest rates and concerns surrounding fair value accounting for its loan book. Most banks hold loans at cost, but SOFI values them at fair value, which has led to a perceived decrease in value as rates have risen. The company's personal loan charge-off rate stands at 3.7%, and the 90-day delinquency rate is 0.4%, both considered healthy as of June. Despite the stock's performance, SOFI's business fundamentals appear strong, with record revenue, members, loan originations, and raised full-year guidance, indicating growth of 40%. Fee-based revenue, including card interchange, brokerage, and loan platform fees, constitutes 39% of its total revenue. In September, SOFI settled over $25 billion in card volume using its own stablecoin. Analysts from Keefe, Bruyette & Woods cut their target to $15 with an 'Underperform' rating, citing fair value accounting, rising rates, and balance sheet growth. However, the stock is trading below these targets. The key point is that a fair value markdown is not a realized loss, as SOFI still collects every dollar if the borrower pays, and this mark reverses when rates decline. The real question is the charge-off rate, which remains low. The company's valuation at approximately 18x 2027 consensus earnings, with projected EPS growth of 38-42%, suggests a potentially attractive entry point if interest rates have peaked. The key date for confirmation is October 27th, when Q3 earnings are reported and the market will assess whether rates are near their peak or if inflation remains a concern.

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