SoFi is still a long-term buy despite the student loan moratorium
After weeks of a steady downtrend, Sofi Technologies (NASDAQ:SOFI) showed signs of bullish momentum. I’m not bearish on SOFI stocks – in fact, I’ve written about its long-term outlook several times.
I see a company that has racked up wins. SoFi has grown its revenue at a rapid pace and is beginning to expand its product portfolio.
However, from a technical point of view, you shouldn’t try to catch a falling knife, but if you do try, you better be careful. Now that I’ve seen some momentum, I can’t help but wonder if a reversal is coming for SOFI stocks.
To understand this, I like to look for reasons why the downtrend might continue. Let’s take a closer look at one factor that analysts have pointed out.
Morgan Stanley downgrades SOFI stock
Investment bank Morgan Stanley recently issued a downgrade for SOFI stock. It was also a big downgrade. SOFI stock went from an “overweight” to an “equal weight” recommendation. Its price target dropped from $18 to $10. The main reason cited by analysts was the extension of the federal student loan moratorium.
For a quick recap on the matter, President Joe Biden suspended federal student loan payments during the pandemic. At the time, it was seen as a way to stimulate the economy and help those who would have lost their jobs. Many expected that once the worst of the pandemic passed, student loan repayments would resume. But in January, the White House extended the moratorium until May 2022.
The Biden administration is signaling that it could extend this moratorium further. Nothing has been confirmed on this yet. But the Department of Education has instructed Federal Student Loans Services not to notify borrowers that payments will resume.
Much of SoFi’s business involves refinancing existing student loans. With the moratorium in place, borrowers do not need to refinance their federal loans.
Concerns about student loans are misplaced
The extension of the moratorium will have a negative effect on SoFi’s business. But I think Morgan Stanley’s concerns are overblown. According to management, the negative impact of the moratorium would be only $30 to $35 million in revenue per quarter.
The revenue SoFi hit is a pretty big chunk of the company’s $280 million fourth-quarter revenue. But it’s not a debilitating amount. At the high end of the range, the impact is around 12.5% of revenue.
I’m not too worried about that given Q4 2021 revenue was up 54% year-over-year. If SoFi can continue its pace of growth, then it can mitigate the impacts of an extended moratorium.
Moreover, the moratorium only postpones the payments to be made on these student loans. So, instead of refinancing this year, borrowers will start thinking about refinancing closer to the scheduled end of the moratorium date. In other words, the revenue SoFi may earn is not lost, but simply pushed back.
Takeaway meals on SOFI Stock
Am I sure this is the bottom of the SOFI stock? Of course not. However, I continue to like the company and its long-term prospects.
Of course, there are a few speed bumps on the road. However, I don’t think these are significant enough to derail the momentum of the company. At worst, it might block it a bit.
On the date of publication, Joseph Nograles had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.