By Mackenzie Tatananni

SoFi stock declined in premarket trading Thursday as Keefe, Bruyette & Woods downgraded the shares, saying the valuation is too high and that the fintech will struggle to meet its financial guidance.

The stock was down 1.6% to $15.16 in premarket trading, putting SoFi on track for its longest losing streak since a four-day stretch in September, according to Dow Jones Market Data.

The losses came after Timothy Switzer lowered his rating on SoFi to Underperform from Market Perform and raised his target for the price to $8 from $7.

Switzer noted that shares climbed 57% in 2024 and more than doubled since September, crediting those gains to optimism among investors about high-growth fintechs after the election. Keefe, Bruyette & Woods' analysis indicates the valuation is overstretched "across a wide matrix of multiples," Switzer wrote.

While SoFi has offered a long-term forecast for earnings per share in the range of 55 cents to 80 cents, reaching that 2026 target will require "a significant pick-up in revenue with strong operating leverage, " Switzer said. He characterized the path as "long and difficult."

The analyst also pointed to management's long-term target for a return on average tangible common equity between 20% and 30%. "Only a handful of chartered banks can manage to sustainably generate returns even in the 20% range," Switzer argued.

Even if SoFi generates a return on equity of more than 20%, which is "likely unachievable until 2028 at the earliest," the firm projects 46% downside for shareholders, meaning the stock could lose nearly half its value if market conditions trigger a drop in price.

SoFi was founded in 2011 with a focus on providing student loan refinancing options. The company has expanded its offerings to include home loans, personal loans, and credit cards. It operates through three arms: lending, financial services, and a technology platform.

Shares of the fintech had an undeniably good year. The gain of 57% in 2024 overshadowed peers including PayPal, Affirm Holdings, and Block, which rose 39%, 27%, and 13%, respectively.

Despite its strong performance, some analysts have argued that the stock is too expensive. In December, BofA Securities downgraded SoFi to Underperform from Neutral while maintaining a price target of $12.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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January 02, 2025 09:25 ET (14:25 GMT)

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