Episode Transcript
[00:00:01] Speaker A: Hello. Welcome to the Money Adjustment. I'm your host, Dr. Mark Kramer, D.C. i am a chiropractor who loves investing and trading. Are you interested in what's moving markets and your money?
[00:00:14] Speaker B: Great.
[00:00:16] Speaker A: Let's get started. In today's episode of the Money Adjustment, I'm going to go through a fundamental and technical analysis of SoFi. Now, because I prefer technical analysis to fundamental analysis, for the fundamental part, I had to do a little bit of research and I had to script and read a lot of what I found. So if you're interested in fundamentals, air through the first part and make it to the second part which is the technical analysis. That's where I'm going to light up a little bit. That's where you will see a little bit more of me being myself. There are two primary ways to evaluate a stock fundamental analysis and technical analysis. Simply put, fundamental analysis helps you decide what to buy and technical analysis helps you decide when to buy and when to sell. I favor the latter for reasons I will explain later in the episode. Today's special episode of the Money Adjustment features a fundamental and technical analysis of sofi Technologies Incorporated Ticker symbol sofi. Sofi. SOFI is a fintech company offering various financial services and products, including consumer and business services. In this episode, expect 1 an overview of the company, 2 key data points for the stock, 3 the bull and bear case for SoFi, and 4 potential entry and exit points, including risk management. Full disclosure I do not currently have a position in SoFi. I'm doing this episode at the request of a friend who recently expressed interest in the stock and asked for my opinion. I am not a financial advisor. Be sure to do your due diligence. I trust you will. SoFi is expected to report earnings this Tuesday, October 29th, 2024 before the market opens. If you manage money, yours or someone else's are interested in fundamental or technical analysis, have a position in SoFi, or are thinking about taking a position in SoFi. This episode is for you.
[00:02:20] Speaker B: Let's get to it.
[00:02:22] Speaker A: SoFi was founded in 2011. The company's initial goal was to provide more affordable options for those taking on debt to fund their using data science to access risk and offer borrowers lower interest rates. This innovative approach helped SoFi quickly gain traction and by 2013 the company had already funded $200 million in loans to 2,500 borrowers across 100 eligible schools. SoFi went public through a merger with a Special Purpose Acquisition Company, otherwise known as a SPAC, on January 7, 2021 at a valuation of 8point today. SoFi's current valuation as of October 25, 2024 is $11.71 billion. The company has expanded its offerings beyond student loans to include mortgages, personal loans, auto loans, credit cards, stock investing, insurance and bank accounts. Solidifying its position as a leading online lender, SoFi makes money through various channels across its financial products and services. SoFi's lending products generate revenue primarily through securitization and whole loan sales. This means they sell loans to investors like pension and insurance funds at a premium, allowing SoFi to benefit from the difference between the loan's interest rate and the cost of financing. For example, if SoFi refinances a student loan with a 5% annual percentage rate for five years and the borrower originally paid 7% APR, the borrower saves 2% APR annually. SoFi then sells the loan to investors for a premium, earning a profit. SoFi invests the company's investment platform doesn't charge commissions for buying or selling stocks, ETFs or fractional shares. Instead, they earn revenue through interest on uninvested cash share lending, payment for order flow, cryptocurrency transactions and ETF management fees. SoFi also earns money through interest on deposits, debit card transactions, life insurance partnerships and referrals. Overall, SoFi's diversified business model allows them to generate revenue through multiple streams, enabling competitive rates and services for their members.
So what are the bull and bear cases for SoFi? Let's start with the bull case. SoFi offers a broad range of financial products including lending, investing and banking, positioning itself for growth across mult revenue streams. 2. SoFi is an online only model which reduces operational costs, enabling competitive pricing and improved customer experience. 3. SoFi's user base has expanded rapidly driven by its appealing products and user friendly interface. 4. SoFi has strategic partnerships for example with Coinbase and Fidelity, which enhance SoFi's offerings and expand its reach.
[00:05:30] Speaker B: 5.
[00:05:30] Speaker A: SoFi's continuous innovation for example, SoFi Invest and SoFi Money attracts new customers and increases average revenue per user.
[00:05:40] Speaker B: 6.
[00:05:41] Speaker A: SoFi's margin lending business provides a high margin revenue stream.
[00:05:46] Speaker B: 7.
[00:05:47] Speaker A: Increasing digital banking and financial services adoption fuels SoFi's growth. Here's the bear case. 1. Stricter regulations or changes in lending laws could negatively impact SoFi's business model. 2. Traditional banks like Chase and Bank of America and Fintech giants like block and PayPal may challenge SoFi's market share. 3. SoFi's lending business exposes it to potential defaults and credit losses. 4. Changes in interest rates can affect SoFi's net interest income and profitability. 5. Technical issues, cybersecurity threats or compliance failures could harm SoFi's reputation. 6. Attracting new customers may become increasingly expensive. 7. SoFi's valuation may be over overstated relative to its earnings and growth prospects.
As noted at the beginning of the episode, SOFI is expected to report earnings this Tuesday before the market opens. Two numbers take center stage when a company reports earnings, the top and bottom lines. The top line focuses on revenue growth. The bottom line emphasizes profitability. Revenue growth can be misleading if costs are rising faster than sales. Profitability provides a clearer picture of financial health, revenue growth highl sales performance while profitability reveals financial sustainability. Both metrics are essential for understanding a company's overall financial situation. Analyst forecasts are used to set market expectations. According to Zack's Investment research, based on 7 analysts forecasts, the consensus earnings per share EPS forecast for the quarter is $0.04. The reported earnings per share for the same quarter last year was negative $0.03. Analysts expect SoFi to report significant growth in its Q3 2024 earnings with a forecasted earnings growth rate of 50.9% and revenue growth rate of 13.2% per annum. The company's EPS is expected to grow by 53.3% per annum with a future revenue on equity forecasted to be 8.1% in three years. SoFi has already shown strong performance in its first quarter earnings, beating analysts estimates and raising its annual reven revenue forecast by 25 million and net income guidance by $70 million above its previous estimates. The company's technology and financial services segments are driving growth with 21% growth in technology platform segment and 86% growth in the financial services segment in the first quarter. For simplicity, a beat on the top or bottom line would likely raise the stock price. A miss on the top or bottom line would likely lower the st.
Trading a stock close to earnings can result in a significant price volatility, increased trading volume and heightened risk due to potential revenue, profitability or guidance surprises. Therefore, it is essential to have a clear strategy and risk management plan in place. Now let's get to some technical analysis of SOFI in the chart. I favor technical analysis over fundamental analysis when trading because unlike a financial professional, I do not have the time, connections or resources to dedicate to the research necessary to conduct a proper fundamental analysis. Many retail traders like myself do not. What I do have which can be learned and accessed by anyone is charts. Retail traders can also access information and do fundamental analysis if that is Their preferred style. Whichever your preferred style, you must be clear on your time horizon before taking a position. So before we zoom in on the chart, answer the following question, what is your time horizon? Are you an investor like Warren Buffett looking to buy a stock to hold for years to decades? Are you a swing trader looking to hold a position for weeks or months? Or are you a day trader or scalper looking to make money today?
Technical analysis involves looking at the time horizon ranging from years to seconds. In any case, starting from a longer time horizon is helpful to orient yourself to today. Longer time frames Given more accurate picture, longer time frames tend to have less noise, clear trends and more reliable patterns. They can minimize emotional bias, improve risk management, help you better understand market structure, and allow better alignment with institutional traders, traders who provide the size to move markets.
[00:10:36] Speaker B: So I have a chart open of SoFi and without getting overly technical, we're taking a broad look at the performance of SOFI over a five year period that will include its initial public offering, its IPO, which was January 7, 2021. If we look at the open, it was $12.59 and the high of the day was $22 and the close was $18.74.
So if I traded through periods of highs and lows throughout 21, in November of 2021, when a lot of stocks that were similar to SoFi, high growth tech companies with no earnings, essentially those stocks did very poorly after 2021 and this stock was no exception. So STOFI at Its highest was $25.85. And then by the day of 2022, the stock had reached $6 and 23 cents. So it was trading in the $6 range. And then it traded sideways for a while between $5 and looks like there was a period where it hit $8.52 and traded what we would call sideways for a number of years from February 2022 to July 2023, the stock rounded out and it's starting to come back up. And In July of 2023, it hit a price of $11.70. Now that $11.70 is going to be relevant. If you're listening to this and seeing the chart, why is that number relevant? Well, we fast forward another couple of years to present time, which is October 24, 2024. And the stock had a recent run from August 5th of 2024, it ran from about $6 to its current trading price of $11.34. So currently the stock is trading between $11 $11.50. Now the fundamental analysis Portion gave us a sense of what is going on with the stock in a broader overview. Now it is a fintech company, it's a growing company, it's in the financial industry.
There is a lot of speculation on the stock. It's reporting earnings tomorrow. The earnings are anticipated to be good, better than last year's earnings, suggesting growth. And if the stock comes in at or higher than its expected earnings, then we could see a pretty decent sized move. And why would there be a decent sized move? Well, this goes back to that $11.70. The stock over the last couple days has been pushing towards that recent high. Not its all time high but certainly I'm not even sure if it's a 52 week high because it was back over a year ago.
So it's 52 week high was recently in the last couple of days. But before that the 52 week high was $10.49. So the stock is really trying to break out of a recent consolidation period.
And if the stock breaks that $11.70 that we talked about earlier, the next point of resistance looks to be about $13.70. Now why do I say that? Because In January of 2022, the stock broke down from a support level that was underneath $13. And so the stock tested $13 a few times between January 2022 and let's say February 2022. So for a couple months the stock was pushing against that 13 zone, couldn't break from it and then broke down to those numbers that we were talking about before. So the stock trades somewhere between let's say 6 and $13, which is an extreme range. And this is a volatile stock. So that's something definitely to keep in mind especially if you're going into an earnings report which can be volatile on non volatile stocks.
So when we're looking at SoFi trading between 6 and $12, it's currently trading at $11 and it's pushing up against that 11 mid elevens to that 1170 number. If it breaks 1170 then it's going to have less resistance. There's going to be less sellers above that level because a lot of sellers have already exited that stock more than likely or a lot of aggressive selling has already exited that stock. And so there should be room for that stock to run. For people who look at technical analysis, they're going to be looking at similar things that I'm discussing with you. And they are the traders that are going to potentially move that stock to that higher level because they anticipate a $13 move. Assuming the stock is doing well fundamentally, and that's where there's kind of a tie in with the fundamentals and the technicals, you're more likely to be confident trading if the fundamentals line up with the technicals. So on Tuesday of this week, if SOFI reports a good earnings and the stock breaks above a key level that is currently testing, then it really has a lot of room to run, depending on the volume. So I'm not going to get too much into volume on this episode, because I'm already giving you a decent amount of information here. If you're seeing price action with a lot of volume, that gives more credibility to the price action that you're seeing. If there's not a lot of volume, then it doesn't take much buying or selling in one direction or the other to get a stock to move in price. But if you see a heavy amount of volume and then it's a signal of a stock moving a certain direction, it gives you a sense of who's taking control, buyers or sellers. So if we see a lot of volume come into SOFI after earnings and they report a good earnings, and we're seeing, technically speaking, that stock could run to about $13 or above $13, let's just say for simplicity's sake, you get an entry, you're fortunate, maybe the stock pulls back a little bit, or you've already gotten in below a certain number, but let's just say you got in around $11. That stock could potentially move $2, which on a stock that's trading within the $10 range, that's a 20% move. And that could could be very tempting for someone to actively want to take that trade. So we're looking at a price point between, let's say, a price target of $13. Now, what some traders will do, myself included, is if you're thinking, okay, a lot of people are eyeing that $13 level, maybe I'll get out a little bit early, right? And so there's a little bit of that psychology happening there. And so maybe people are going to get out just before that 13 level. We won't know actually what's going or how the market's going to react until the company reports earnings. There's always a degree of uncertainty in trading, which is what makes trading what it is. When you take risk, you do not know the outcome. That's the whole point of taking risk. And what you're just trying to calculate is. Or it's a calculated risk. Right. I'm looking at data to give me a sense of where the price could move and depending how strongly I feel about the chart or the fundamentals of the company, will give me a sense of where I might want to take profit and where I might want to stop losses from occurring. So we like to think about the stocks moving in the direction that we want them to move because that's when we make money. But we have to be prepared that a stock can move in the direction that we do not want it to move or it moves against us, the stock moves against us. And in that circumstance, then we just want to keep our losses lower. That's where risk management comes in. So if I have a price target from again, for simplicity sake, if I have a price target from 11 to 13, that's a two dollar move. That's a pretty decent sized move. So let's talk about risk management. Risk management, if we think the stock is going to move from $11 to $13, is a $2 move. If we're going to do a risk reward ratio, I'm willing to risk $1 to make $2. That's a one to two risk reward. So for simplicity, if I had 10 shares of SoFi and I was willing to lose $1 or $10 total, then I would have a stop loss set at $10, which is a dollar underneath the $11 price. Let's say it's trading or my entry was $11.
So let me say that again. If I bought the stock for $11 and I'm willing to lose a dollar, that means I'm willing, I would stop loss at $10 is $13, which means that I would make $2 if it hit my price target. Now, if you're playing with scale larger numbers, just multiply that by whatever you're willing to lose. If you're willing to lose $100, then you're playing with 100 shares. If you're willing to lose $1,000, then you're playing with 1,000 shares. And for the reward, it's $1,000 to make $2,000. It's $10 to make $20, it's $100 to make $200. You get the idea.
So now we zoomed out. We kind of know the broader level. I wouldn't even wait for the stock to go to $11 if I was going to take this trade. Because if we go into more recently where it's been trading, it's got a very clear price action here. So it bottomed out around that 1079 level. So it wouldn't even have to go to $10 if it breaks 1070, even lower. 1078 if it breaks even. Let's just keep it simple. If it breaks 1080, then there's a lot of downside. It could go all the way to 1042. That's that. That would be another, what, 1080, 1042, 40 cent move.
So I would actually, if I was going to trade SoFi, I would have a stop loss at $10.80. And if I have a stop loss of $10.80, I can have my price target at.
If I still want that same 2 to 1, I don't even have to get to the $13. But I think you can get a better than 2 to 1, which would be the reason to trade earnings because there's more price action, a little bit more volatility. So you can, and you can have clear points of entry and clear points of exit. A clear point of exit would be below that 1070. If you wanted to give it room to breathe, give it to 1070 or even 1060 or even 1050. Because if we're talking about losing a dollar, what's losing 50 cents? So I'd be willing to lose 50 cents on this trade. And the reason I'm lowering the stop loss is because everybody who's trading this is going to be looking at that $10.80 cent level. And it could be a shakeout below that level for people that think, oh, people are going to get out at that level, and then that's a good opportunity to get in. There is a lot happening behind the scenes.
I wouldn't worry about that. A lot of people aren't going to be able to see what's happening. You're not going to know everything that's happening, but you can have very clear signs of what other people do. See. You're playing the same game. You're going to see the same things. $10.80 is the low. And then if we break out the recent high, the recent high, not that high that I was talking about back in 2022, but the recent high of $11.33. If SoFi can break $11 and 33 cents, this does not look great to me for some reason because I thought it was already trading higher recently.
October 24th. No, I guess it must have went down in the close. It didn't follow then. Okay, so it is. It's right at $11. So if you happen to get into this stock or you're in the stock and you're somewhere around that $11 level, but let's for our analogy, say you are at that $11 level. I'd be willing to risk down to 1050. That's a 50 cent downside move to potentially, let's just go to $12 because I was talking about $13 before you see how I'm even thinking about it. You, in your own mind, there's no, this isn't an exact science. This is an art. And so the art of it is I don't know where it's going to move tomorrow. If I did, I would just be rich because I would just know how things are going to move and I put all, I go all in and I'd be done. But the reality is that this is a risk management game. And so you have to decide for yourself how much are you willing to lose and what are you trying to gain or what is the potential upside for the stock. So from what I'm seeing based on fundamental and technical analysis, is that SoFi stock could move to $13 within a relatively short period of time. So if you were going to trade it on a shorter time horizon, you could use that $13 mark as your price target and then adjust your risk accordingly to the downside.
Now if you're looking to invest in SoFi and you're playing the long game on SoFi, you have to be asking yourself, is this current eleven dollar level a good entry point? And I'm not interested in SoFi. I don't think I would get in at this level to hold for longer term.
On the longer term chart, it does look like a reasonable entry point because if it breaks through 1170, it will have broken through a very major resistance level and that will give it on a longer time frame a lot more room to run. Now, there's other variables beyond that because we're just talking about the stock. What if the whole market turns? Well, that's not going to, that's going to null and void what I'm telling you with regards to the stock. Because when the whole market goes, it doesn't matter what the individual stock is doing because the whole market could go down. So you have to be mindful of all of these things when you're trading or investing. So to summarize, I would have a stop loss to 1050 and a price target of upwards of $13 depending on price action. Now if you were going to invest, it is a reasonable level to get in at again with tight stop loss because if it breaks that 1080 level, then it could just, it could be a much longer downside for this stock. So that was a fundamental and technical analysis of SoFi. I hope you found some value in that. If you like these, I will do more of them and I will get better at doing because to be honest, it was a bit of a challenge.
I hope you guys enjoyed Go Make Some Money.
[00:27:42] Speaker A: Thank you for watching this episode of the Money Adjustment. If you want more like comment and subscribe, you can follow me on X Mark Kramer until the next episode. Stay healthy and wealthy.
