New SoFi Price Target as Company Rocks Wall Street's 'Rule of 40'
There's a lot to like here as my second largest holding attempts to break out even further.
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You know it's a good morning when you set out to write a story about one stock and then realize that one of your favorite stocks and your second largest holding is now trading about a dollar per share above your price target.
All hail SoFi Technologies SOFI. All hail CEO Anthony Noto, former star linebacker for the Black Knights of the Hudson. I told you that I liked this guy enough to bet on him.
Noto spoke on CNBC on Thursday morning concerning SoFi having opened investment in private companies through funds to its users/customers. Noto also mentioned that SoFi has, for thirteen consecutive quarters now, outperformed Wall Street's famed "Rule of 40."
The Rule of 40, for the new kids, is what we call it when a firm's annual revenue growth in percentage terms plus its EBITDA margin in percentage terms add up to greater than 40. It's a way to measure just how well-perceived growth stocks are actually doing.
Student Loan News
On Wednesday, the Department of Education announced that interest accrual for loans under the Savings on a Valuable Education plan will restart on August 1. A Biden-era program, the SAVE plan allowed some student loan holders to pay 0% interest and others to not make monthly payments. The authority of the federal government to grant 0% interest was overturned in federal courts.
The termination of these policies will likely be a positive for higher profile lenders operating in the student loan space such as SoFi, Nelnet NNI and SLM Corp. SLM, which is the old Sallie Mae.
The Shares
Regular readers will likely remember that I increased my SOFI price target to $20 from $19.25 just last week, on July 1. This morning, the shares apexed at $21.32 before some profit taking settled in about 30 minutes after the opening bell.
The shares are up about 143% since the lows of April. If one thinks that to be cherry-picking to exaggerate performance, which I won't deny, then SOFI is up 44% since its April high. Rock and roll.
Reminder
SoFi is expected to report its second-quarter financials in less than weeks' time. Wall Street is looking for GAAP EPS of $0.06 on revenue of about $803 million. This would compare well to the year-ago comparison of $0.02 per share on revenue growth of more than 34%. Over the past 30 days, seven of the eight sell-side analysts that I see that cover SOFI stick have increased their estimates for the quarter, while just one has decreased that estimate.
This is very close to the same chart that I have already shown readers. The shares continue this breakout from the visible inverted head & shoulders pattern of bullish reversal. Relative Strength has now moved significantly into technically overbought territory. Sooner or later, there will have to be some consolidation unless there is speculation that the firm is in play.
Let's be clear, I have not heard that, and I am not implying that. The way it is trading has made me wonder. That is all. Stocks can remain overbought for lengthy periods of time.
The stock's daily MACD (moving average convergence/divergence) has now taken on a very bullish posture. The histogram of the 9-day EMA (exponential moving average) is now well above zero, with the 12-day EMA well above the 26-day EMA. Both of those lines are also now deep into positive territory.
If we add an Andrews' Pitchfork model to the above chart, we see that the shares are trying to break out further, past the upper trendline of the model, which is our new pivot. This also improves areas of potential support should there be a selloff at some point.
SoFi Technologies (SOFI)
Price Target: $26 (up from $20)
Pivot: $21
Add: Between the 21-day EMA and the 50-day SMA (simple moving average)
Panic: Loss of contact with the 200-day SMA
At the time of publication, Guilfoyle was long SOFI equity.
