SoFi Technologies, Inc. (SOFI) offers digital financial services. The company operates in three segments: Lending; Technology Platforms; and Financial Services. It provides student loans, personal loans, and home loans.

Last month, Joe Biden unveiled a three-part plan to reduce student loan debt to address the financial effects of the pandemic. This announcement is expected to be a game changer for SOFI, resulting in a significant increase in borrowers looking to refinance their outstanding balances.

However, investors have been skeptical of SOFI due to its disappointing financials and declining growth. The stock has slumped 58.1% over the past year and 16.2% over the past month to close its last trading session at $6.41. Also, it is currently trading 73.9% below its 52-week high of $24.65, which it hit on November 11, 2021.

Here's what could shape SOFI's performance in the near term:

Inadequate Financials

SOFI's non-interest expense grew 15.5% year-over-year to $458.24 million in the second quarter ended June 30, 2022. The company reported a net loss of $95.84 million, while its loss per share came in at $0.12.

SOFI's total liabilities were $7.16 billion as of June 30, 2022, up from $4.48 billion as of December 31, 2021. Furthermore, its cash outflows from operating and investing activities totaled $1.96 billion and $4.92 million for the six months ended June 30.

Negative Profit Margins

SOFI's trailing-12-month ROA, net income margin, and ROE are negative 2.7%, 28.5%, and 8.3%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.12% is 38.8% lower than the industry average of 0.20%.

POWR Ratings Reflect Bleak Outlook

SOFI has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. SOFI has an F grade for Quality. Its poor profitability is in sync with the Quality grade.

Of the 107 stocks in the F-rated Financial Services (Enterprise) industry, SOFI is ranked #106.

Beyond what I've stated above, you can view SOFI ratings for Stability, Momentum, Growth, Value, and Sentiment here.

Bottom Line

The company is anticipated to experience decelerating growth in the near term, despite Biden's recent announcement on student debt. The stock is currently trading below its 50-day and 200-day moving averages of $6.54 and $9.34, respectively, indicating a bearish sentiment. Given its poor financials and negative profit margins, we think the stock is best avoided now.

How Does SoFi Technologies Inc. (SOFI) Stack Up Against its Peers?

While SOFI has an overall F rating, one might want to consider its industry peers, Forrester Research Inc. (FORR) and Everi Holdings Inc. (EVRI), which have an overall A (Strong Buy) rating.

SOFI shares were trading at $5.93 per share on Tuesday morning, down $0.48 (-7.49%). Year-to-date, SOFI has declined -62.49%, versus a -15.62% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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