Sofi's Stock is on Track to Close the Year at Its Highest Level

Shares of SoFi Technologies Inc. have extended their rally into a fifth consecutive trading session, surging significantly on Monday. This recent rise has pushed the stock toward what could be its highest closing price of the year. By Monday afternoon, the stock had risen by 10.6%, reaching $9.97. If these gains hold through the market close, SoFi shares will mark their highest finish since closing at $10.28 on December 28, 2023.

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The financial technology company announced Monday morning that it had secured a $2 billion loan-platform agreement with funds managed by Fortress Investment Group LLC. This deal is part of SoFi’s broader platform strategy, which focuses on referring prequalified personal-loan borrowers to its partner institutions. The agreement signals a notable development for SoFi, especially given recent concerns about the company's lending operations.

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The announcement of this partnership with Fortress Investment Group holds considerable importance, particularly because some investors have expressed concerns over SoFi’s lending practices. Dan Dolev, an analyst at Mizuho Securities, explained that bearish investors have worried about SoFi's lending business. While Dolev himself remains optimistic about the stock and has no reservations about SoFi’s lending operations, he noted that skeptics are concerned that the company lends a substantial amount of money to borrowers without strong underwriting practices.

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Dolev emphasized that because of these concerns, any news that reinforces confidence in SoFi’s lending business is positively received by the market. According to him, Fortress’ partnership with SoFi serves as an implicit endorsement of the company’s underwriting model, reassuring investors about the soundness of SoFi’s loan business. Additionally, investors likely appreciate that SoFi is expanding its lending operations in a way that minimizes its exposure to balance-sheet risk.

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The deal aligns with SoFi's strategy of growing its business without adding significant credit risk to its own balance sheet. This approach allows SoFi to continue to offer lending services while generating fee income, rather than taking on the full financial risk of the loans.

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Dolev is one of four Wall Street analysts who maintain a bullish outlook on SoFi’s stock, according to data compiled by FactSet. While Dolev is confident in the company’s potential, not all analysts share the same level of enthusiasm. In fact, most analysts covering the stock are neutral. Of the 17 analysts surveyed, 10 have assigned a hold-equivalent rating, indicating a more cautious stance. Meanwhile, three analysts rate SoFi stock as a sell.

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One of the more neutral voices is Timothy Switzer, an analyst with Keefe, Bruyette & Woods. Switzer, who rates SoFi stock as “market perform,” commented that the details of the Fortress agreement were limited in the company’s press release. However, he views the announcement in a positive light, stating that it could indicate growing investor demand for SoFi’s lending business. Switzer also noted that SoFi’s loan-platform strategy represents an efficient way for the company to generate fee income without consuming capital or taking on additional credit risk.

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SoFi shares have experienced a notable rally in recent months, posting gains of 29% over the past month and a 43% increase over the past three months. This momentum comes despite the stock being relatively flat on a year-to-date basis. Additionally, SoFi's current stock price is still a far cry from its all-time high. The company’s shares reached a record closing price of $25.78 in February 2021 but have since dropped by 61%.

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Despite the recent uptick, the stock remains far below those historic highs, indicating that the company still has a long way to go in rebuilding value for shareholders. The agreement with Fortress, however, could serve as a catalyst for further stock price appreciation if it successfully addresses some of the market's concerns about SoFi’s lending business and overall financial health.

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Moving forward, the company’s ability to maintain this upward trajectory may depend on several factors, including continued execution of its lending strategy and broader market sentiment toward financial technology companies. Given the mixed opinions from analysts, investor interest in SoFi’s platform business will be crucial in determining the stock’s future performance.

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As SoFi works to balance growth and risk, the Fortress partnership offers a key opportunity for the company to expand its loan operations while minimizing the potential for downside. If successful, this strategy could help SoFi gain further traction in the highly competitive financial-technology space and potentially regain some of the ground it has lost since its peak stock price in 2021.

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In conclusion, SoFi Technologies’ recent rally and its $2 billion loan-platform agreement with Fortress Investment Group represent a significant step forward for the company. While analysts remain divided on the stock's outlook, the agreement appears to reassure investors about the company’s lending business and offers a path to growth that doesn’t overly strain its balance sheet.

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