SoFi (SOFI) Stock Could Be 26% Overvalued Despite Rate Hike Fears

SoFi Technologies has seen its share price fall sharply this year after a strong multi year run, which puts fresh focus on whether the current market value is supported by the returns the business earns on its capital.

• Over the past 3 years the stock has gained about 97.8%, raising the question of whether those past gains still line up with the returns SoFi can generate on each dollar it reinvests.
• Recent rate driven share price pressure and a premium market view in earlier periods highlight how sensitive SoFi's valuation can be to expectations about funding costs, credit quality and the profitability of its expanding banking and technology platforms.
• What if you looked at SoFi Technologies through its earnings instead? See what SoFi Technologies's 30.6x P/E says about the price.

The issue now is whether SoFi's current share price is adequately backed by the returns it earns on its capital today and what investors expect it can earn in the future.

If the recent swings in SoFi Technologies have you rethinking how you assess returns on capital, a focused screen of 33 high quality undervalued stocks.

Has SoFi Technologies Run Too Far on Excess Returns?

The Excess Returns model looks at how much profit SoFi Technologies can generate above its cost of equity on each dollar of shareholder capital. On this view, the business is working with an average return on equity of 8.93% against a cost of equity of $0.84 per share, which leaves an estimated excess return of $0.08 per share. Book value is put at $8.58 per share, rising to a stable book value estimate of $10.26 per share. The approach is effectively asking how long SoFi can earn these extra cents on a slowly growing equity base.

Stable EPS is estimated at $0.92 per share, which anchors the Excess Returns output, and the projections imply a meaningful gap between that intrinsic value estimate and the current share price of $15.09. The recent share price slide on rate hike concerns and banking sector weakness helps explain why the stock trades where it does, even though the model still credits SoFi with returns above its equity cost. Find out what SoFi Technologies could be worth using our Excess Returns estimate.

The SoFi Technologies Narrative: What Would Justify Today's Price?

SoFi Technologies' valuation puzzle only really comes into focus when it is linked to the specific paths investors think growth, margins and earnings might follow next. This is where Simply Wall St Narratives on the Community page step in as the bridge between today's price and different potential futures for the business. Each narrative ties its number to a concrete, testable view on how SoFi Technologies' growth, profitability and risk profile could evolve, giving you something you can track against actual results over time.

SoFi Technologies splits the community, with one camp arguing the stock embeds too much platform risk while another sees a misunderstood financial super app.

Bull case: 34% undervalued

"The core investment opportunity relies on a major market misunderstanding. The market values SoFi as a traditional lender, but it is actually transitioning into the "AWS of Fintech"…"

Discover why this Narrative puts SoFi Technologies at 34% undervalued.

Bear case: 8% overvalued

"One of the most important risks is that SoFi attains most of its profitability from NIM. If the Federal Reserve loosens further, it may see off significantly from SoFi’s net interest income…"

Explore why this Narrative puts SoFi Technologies at 8% overvalued.

One more angle on SoFi Technologies that could change your view

Valuation models only tell part of the story, because Simply Wall St's broader checks on SoFi Technologies have also flagged specific areas of concern that deserve a closer look from you. Take a closer look at 1 major warning sign before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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