BY MARK SEBASTIAN
October 22, 2024
Right now….Sofi does not make money. I find that somewhat hard to believe because this is a company in the student loan business.
Getting out of a student loan is only slightly easier than escaping from Alcatraz unless its forgiven by the government (which does not apply to private lending).
However when you zoom out some of this makes sense….Sofi got their start during a period of time when lending rates were some of the lowest we have ever seen…and had been for nearly a decade. Rising rates when you have loaned out a lot of debt is never going to feel good.
But it is not like this firm made money when rates were low:
They actually started turning a profit in April, not huge…but it is something.
They have introduced new funnels to create income…notably investment accounts…it makes sense for them…the people they initially loaned money too are also making money and already have a relationship with SOFI. It is smart of them to leverage that relationship.
If rates do fall, it will benefit SOFI…but don’t overlook the ability of this stock to take off.
Here is a stock we all thought was dead
Its AFRM…we all thought it was toast…rumors of its death were greatly exaggerated…
I think this is more of a trade than an investment near term…which brings in Licia and the Charts.
As you can see from the charts Sofi Technologies (Ticker: SOFI) is usually range bound:
It has recently broken out testing those highs of December 2023.
Zooming in, the stock is bull flagging off the gap created on October 14th.
When a stock has a bull or bear flag it is taking a pause and consolidating to gear up for its next leg higher or lower.
In this case it is most likely higher.
The top of the pitchfork, which is the next level of resistance comes in at $11.13
The Relative Strength Index is showing overbought conditions but this can last a long time and does not mean it is time to sell.
Support comes in at $9.05.
Earnings are scheduled for October 29th and could be the catalyst determining the next direction of SOFI.
SOFI volatility looking so fine
As Mark pointed out, as with Robinhood Markets Inc (Ticker: HOOD) this year, the consumer finance companies set up for the younger generation are finding ways to make money. Lots of customers are turning into money and both HOOD and SOFI are on my Longshots list of 31 stocks that could bounce this year for my Flash10.
What I do see is very long term volatility very low. This is common with a hot stock that fell out of favor where a lot of the action was looking for a short term pop reminiscent of the Meme era of 2021.
1 year SOFI 90 day and 120 day IV with 90 day realized vol in purple
Implied volatility is cheap and I would expect SOFI to continue to fun on positive earnings. This is a bit of a bet on a new administration since the current keeps pushing student loan forgiveness that would be detrimental to SOFI’s business.. The calls are cheap enough in a longer time frame that they could easily pay.
Trump vs. Harris
After Harris was anointed as Biden’s successor, the Dem ticket got a huge poll boost … along with a metric ton of campaign cash.
The Veep rode that wave of support throughout the summer and into the early fall, including an impressive showing against Trump at the candidates’ only debate.
Meanwhile, Trump struggled to craft a campaign strategy to combat Harris.
Recently, however, the tide has turned.
Harris, who hid from the press, has stepped more into the spotlight, which has not gone well.
She has struggled to put forth substantive policy decisions beyond wishful thoughts and her communication skills are not endearing her to undecided voters.
Trump, on the other hand, has been honing his message.
The polls now have the candidates in a dead heat.
But a few telling indicators are leaning Trump.
He is polling well in key battleground states.
He also is leading among bookies and traders, two telling signs.
We still have a few weeks to go, so things could change, but that is the current trend.
Student Loans vs. Lenders
A cornerstone of President Biden’s promises was to eliminate student debt.
Harris would have liked to have ridden that forgiveness.
But fifteen months ago, SCOTUS shot down Biden’s debt relief plan.
SCOTUS disagreed that Biden has the authority to forgive loans for 40 million borrowers.
In response, Biden reintroduced a program to cancel up to $20,000 in student loan debt based on the Higher Education Act (HEA).
But the administrative rulemaking process has proven bureaucratically intensive.
While large-scale loan forgiveness has been blocked, several smaller relief initiatives have been implemented, such as relief from public sector workers and income-based relief.
Last year, a pause in student loan payments from COVID-19 restarted, so the pressure is on.
Total student loan debt is approximately $1.77 trillion spread over 43.5 million borrowers.
While federal loans are not re-financeable, private loans are, and borrowers will benefit from a drop in rates.
About $450 billion in student loans are considered high-interest and would be prime for refinancing.
One of the largest private student loan players is Sofi Bank (Ticker: SOFI).
And one of SOFI’s flagship offerings is its student loan refinancing program.
The program is designed to help borrowers with existing student loan debt by consolidating multiple student loans—both federal and private—into a single loan with potentially lower interest rates.
The program stands out for its lack of fees—there are no origination fees, prepayment penalties, or late fees.
And SOFI offers both fixed and variable rate loans with flexible repayment schedules.
SOFI also provides unemployment protection.
Under that program, if a borrower loses their job through no fault of their own, they can temporarily pause payments.
SOFI and other private lenders have benefited from the restart of federal student loan payments in October 2023.
With payments resuming, borrowers may be more inclined to consider refinancing with companies like SoFi to lower their monthly payments or get better interest rates.
Such engagement also allows SOFI to cross sell other financial products.
Successful forgiveness efforts will dampen the refi market, but for now SOFI will ride the Trump-bump refi-wave.
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