On Monday, SoFi Technologies, Inc. (NASDAQ: NASDAQ:SOFI) experienced a 2.2% decline in stock value following a downgrade by BofA Securities. The financial services company was downgraded from Neutral to Underperform, with a new price target set at $12.00. The downgrade comes after SoFi's shares have seen a significant increase of over 60% year to date, outpacing the S&P 500's rise in the same period.
According to BofA Securities, the surge in SoFi's stock price over the last three months can be attributed to factors such as the Trump election and positive third-quarter results. SoFi's performance has been strong, particularly with expectations of its student loan refinance business benefiting from anticipated policies under a Trump administration. Despite these positives, BofA Securities suggests that the current valuation may be overly optimistic, with SoFi's stock trading at a premium compared to its peers.
SoFi has provided long-term guidance for 2026, projecting earnings per share (EPS) in the range of $0.55 to $0.80. Even if SoFi achieves the higher end of this guidance, its shares are currently valued at 20 times the projected 2026 EPS, which is considered a premium valuation by BofA Securities. The firm indicates that this premium makes the risk-reward balance less attractive, prompting the downgrade.
The analyst's report also points out that SoFi's current valuation is based on a multiple of 32 times the consensus EPS for 2026, which is higher than most established consumer finance companies. While SoFi's aggressive growth targets and future EPS growth of 20-25% are appealing, the high valuation carries increased execution risk and raises concerns about the sustainability of such a premium.
Furthermore, BofA Securities highlighted investor concerns regarding fair value marks and the impact of hedging activities. With SoFi reporting third-quarter hedge losses of $273 million, there is a risk that these losses could mount with further rate cuts and potential market volatility. Additionally, the slower growth in SoFi's technology segment, due to extended timelines for closing deals and partnerships, has led to less clarity on the company's revenue acceleration prospects.
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