Why SOFI Stock Is NOT a Buy Ahead of Earnings

With its next quarterly earnings release a little over a week away, buzz about SoFi Technologies (NASDAQ:SOFI) stock is again on the rise.

While still trading near its 52-week low, SOFI stock bulls anticipate that the fintech firm will beat expectations with its upcoming fiscal results. In turn, propelling shares back up to higher prices.

You, too, may be interested in buying SoFi today. You may be tempted either to flip it after a post-earnings rally or to grab a position ahead of the stock making a comeback, but keep two things in mind.

First, it’s questionable whether an earnings beat will result in a post-earnings spike. Second, even if SoFi beats estimates, and shares rally after Nov. 1, said spike may only be brief in nature. Other factors stand to either keep it at or push it below, current price levels.

SOFI SoFi Technologies (NASDAQ: $5.15

SOFI Stock and Its Upcoming Earnings Report

On Nov. 1, SoFi Technologies will report its results for the preceding fiscal quarter. As InvestorPlace’s Eddie Pan reported on Oct. 13, analysts forecast revenue of $392.76 million and negative earnings per share (or EPS) of 10 cents.

Hitting this revenue estimate would represent a 56% jump from the prior year’s quarter. However, hitting 10 cents per share in negative EPS would represent a nearly 100% jump in losses compared to the third quarter of 2021, when SoFi reported losses of 5 cents per share.

Still, as mentioned above, investors bullish about SOFI stock are expecting a more stellar earnings number. As an online commentator recently argued, continued strength in the personal loan market points to this digital-first lender delivering a Q3 earnings surprise.

Admittedly, an earnings beat isn’t outside the realm of possibility. The sell-side has walked back its Q3 earnings forecast for SOFI in recent months. It is possible that the analyst community has put too much pessimism in its forecast. Yet while this stock surged following its Q2 earnings release, after the company reported losses that were slightly narrower than estimates, we may not see the same response for its Q3 numbers.

A Post-Earnings Rally Is Unlikely

It’s hardly a given that SOFI stock will surge after its upcoming earnings report, mainly because two of the key factors that were at play when shares soared after its last earnings report have left the scene.

Since the end of July, short interest for SoFi Technologies has dropped, from 130.4 million shares to around 96.6 million shares. It’s hard to prove, but SOFI’s move 28.4% higher after its Q2 earnings release on Aug. 3 may have been partially due to a short-squeeze.

In addition, back in August, stocks overall were bouncing back on the hopes of a Federal Reserve pivot on interest rates. Today, with inflation still an issue, the Fed continues to signal that it doesn’t plan to cut rates anytime soon. Without broad renewed sentiment for growth stocks, atop lower odds of a short-squeeze, I’m doubtful that an earnings beat will fuel another turbo-charged rally.

Even if there is a post-earnings rally early next month, it may not last long. The macro worries that have knocked it lower could quickly come back into focus. Countering the small victory of slightly-better quarterly numbers, shares will then resume their downwards trajectory.

The Best Move Now With SOFI Stock

Recent headlines are touting SoFi’s appeal as either a trade or a long-term investment, but it may be best to tune out this noise. It’s far from a given that you’ll be able to flip this stock for a quick profit post-earnings. External factors that would enable this to happen are no longer on the table.

In the event the stock does surge after Nov. 1, don’t view it as the start of an epic comeback for SOFI shares (which earn a D rating in Portfolio Grader). Looming uncertainties will likely keep it languishing at or near current price levels.

As I’ve argued previously, this stock may ultimately only make it back to the high single-digits. Assuming, of course, the company doesn’t get bought out beforehand.

With Q3 results not likely to change the story, continue to skip out on SOFI stock.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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