SoFi Technologies (NASDAQ:SOFI) investors should continue to wait patiently for the stock to pull back to $6, despite a recent Supreme Court decision that could potentially benefit the company. The Supreme Court ruling pertains to student loan repayments, an area that SoFi Technologies is involved in.
While it may seem counterintuitive, the share price of SoFi Technologies actually declined after the SCOTUS ruling. However, when we consider the factors at play, we can understand the market’s response and make informed decisions as financial traders.
The ruling by the Supreme Court involves the repayment requirement for the approximately 44 million individuals in the US who have federal student loans. There has been ongoing debate in Congress and the courts as to whether these loan repayments should be paused or forgiven altogether.
In a major twist, the Supreme Court blocked the Biden administration’s plan to authorize federal student loan forgiveness. This decision could potentially be a positive development for SoFi Technologies, as the company generates revenue by helping students refinance their loans.
The pause on required federal student loan repayments had been a significant challenge for SoFi, evident in the 47% year-over-year decline in the company’s first-quarter 2023 student loan origination volume.
Before the SCOTUS decision, SoFi’s stock had already experienced a rally from $5 to $9 in a matter of weeks. Some analysts, like Giuliano Bologna from Compass Point Research, considered this surge in stock price as overdone.
Bologna’s assessment, which I agree with, suggests that the end of the student loan repayment pause was already factored into the stock price. Furthermore, JPMorgan analyst Reginald Smith stated that the financial impact of the Supreme Court ruling on SoFi Technologies is relatively minor, as only a small fraction of borrowers would choose to refinance with a private lender like SoFi.
The market seemed to understand this, explaining why the SoFi stock dropped after the SCOTUS ruling. The impact of the student loan repayment requirement ending was already anticipated, and its effect on SoFi Technologies is unlikely to be as significant as overly optimistic investors assumed.
While I am still bullish on SoFi Technologies in the long term, it is important to be patient and wait for the stock to pull back to $6. Timing is crucial when it comes to financial trading, and although SoFi Technologies is a disruptive neo-bank with immense potential, the share price became overextended in May and June.
Therefore, my recommendation is to let events unfold naturally. SoFi Technologies remains a promising investment opportunity, but it’s essential to wait for the stock to reach a more reasonable valuation. If the narrative surrounding the company hasn’t drastically changed, investors can then consider scaling into a position at that point.
In conclusion, despite a favorable SCOTUS ruling, SoFi Technologies’ stock price declined. Investors should exercise patience and wait for the stock to pull back to $6 before considering an investment. SoFi Technologies remains a promising company with potential, but timing is crucial in the world of financial trading.
