SoFi Technologies Inc. (SOFI) shares fell sharply on Thursday, dropping 5.9% to $14.50, as analysts at Keefe, Bruyette & Woods downgraded the stock, citing overvaluation concerns and challenges in meeting financial targets. This marks SoFi’s longest losing streak since a four-day slump in September, according to Dow Jones Market Data.
Analyst Timothy Switzer lowered his rating on SoFi from “Market Perform” to “Underperform,” while raising the price target from $7 to $8. Despite the upward revision, Switzer argued that SoFi’s valuation remains excessively high. Shares have surged 57% in 2024 and more than doubled since September, driven by investor optimism around high-growth fintech companies following the recent election. However, Switzer highlighted that the valuation is stretched “across a wide matrix of multiples.”
Challenges in Achieving Long-Term Financial Targets
SoFi has set ong-term goals for its financial performance but achieving them may prove difficult. including earnings per share (EPS) of $0.55 to $0.80 by 2026. However, Switzer cautioned that achieving these goals will require a significant boost in revenue coupled with strong operational efficiency, a path he described as “long and difficult.”
The company’s leadership has set an ambitious long-term goal of achieving a return on average tangible common equity (ROATCE) in the range of 20% to 30%. Switzer pointed out that only a few chartered banks are able to consistently achieve returns in the 20% range, making this goal particularly challenging. He further projected that SoFi is unlikely to exceed a 20% return on equity before 2028, if at all. Even under optimistic scenarios, Keefe, Bruyette & Woods estimates a 46% downside risk for shareholders, suggesting the stock could lose nearly half its value in unfavorable market conditions.
Expanding Beyond Student Loans
Founded in 2011 as a student loan refinancing platform, SoFi has since diversified into home loans, personal loans, credit cards, and financial services. The company operates through three key segments: lending, financial services, and its technology platform.
Despite its broader offerings, some analysts argue that SoFi’s valuation is too high relative to peers. While the stock gained 57% in 2024, outperforming competitors such as PayPal (+39%), Affirm Holdings (+27%), and Block (+13%), concerns about overvaluation persist.
In December, BofA Securities similarly downgraded SoFi to “Underperform” from “Neutral,” maintaining a $12 price target, citing similar challenges around valuation and growth sustainability.