In recent coverage of SoFi Technologies (NASDAQ:SOFI) stock, I’ve provided two key reasons as to why it’s not worth buying. First, the market is overestimating the impact of its student loan catalyst.
Second, taking into account long-term earnings forecasts, a recovery for the fintech firm’s shares at best may only entail a move back to the high single-digits, not a return to anywhere near its past all-time high of $25 per share.
Now, I bring you yet another reason why you should take a pass on SoFi Technologies shares: takeout risk. Yes, there may be some investors out there that would welcome the prospect of this company becoming a takeover target.
After all, many early-stage companies have been taken out by larger, established rivals at high premiums, right? This may be true, but in the case of SoFi, a takeover could result in scant rewards for current investors.
| SOFI | SoFi Technologies | $5.08 |
A Closer Look at SOFI Stock
It’s possible that, through continued growth and a move to consistent profitability, SoFi could become a company that’s worth far more than what its shares trade for today. The problem is, this “liftoff” moment for the company isn’t going to arrive for several years.
Analyst forecasts say that SoFi Technologies won’t report positive earnings until 2024. Between now and then, SOFI stock could struggle to move materially above today’s price levels.
Even worse, if the current bear market lasts longer than expected, and if stocks hit new lows before reaching a bottom, SOFI could keep tumbling over the next twelve months.
Admittedly, this digital-first financial institution’s tangible book value of $3.34 per share could serve as a floor, limiting the extent of future downside.
However, if SoFi Technologies stock drops to around tangible book, then languishes at that price level, a larger bank or financial institution could come in, and bid a relatively low-ball price for the company.
For instance, $5 or $6 per share. Paying $5 or $6 per share would represent a sharp premium, if offered when the stock was changing hands below $4 per share, but would barely be above present levels.
Why Shareholders Might Approve Such a Bid
Search online for chatter about SOFI stock and its potential as a takeover target, and you’ll find commentary from the “meme stock” community suggesting that a competitor would need to offer a lot more than $5 or $6 per share for this company. At first, this argument makes sense.
Back in 2019, SoFi was fielding multiple takeover offers, including one from Charles Schwab (NYSE:SCHW). The would-be buyers offered as much as $10 billion for the then-privately held company. Based on SoFi’s current share count, that implies a buyer would be willing to pay nearly $11 per share.
However, as a public company, a buyer may not offer such a high price. A large shareholder, Softbank (OTCMKTS:SFTBY) is exiting its position.
There are no other large shareholders who could squash a takeover bid. Yes, considering his insider purchases of the stock in recent months, SoFi CEO Anthony Noto may not be interested in selling at a low-ball price.
But if the bid represents a big premium at the time of the offer, the company’s board of directors may agree to a deal. If the board supports a takeover, shareholders will likely vote in favor of one as well.
Bottom Line on SOFI Stock
While it is not a lock that this aforementioned scenario plays out, it’s not outside the realm of possibility, when you consider current market conditions.
Before you think that some other factor, like a possible “short squeeze,” could emerge to save the day, think again.
As one online stock commentator has argued, while short-sellers are covering their positions, shares have kept moving lower. This signals that there’s not enough enthusiasm among retail speculators to drive another squeeze.
Not only that, in contrast to the bravado expressed amongst the meme crowd, it may also signal that many retail shareholders who would possibly balk at a low ball offer down the road, have likely already thrown in the towel.
With even more suggesting that a rebound will be minimal at best, avoiding SOFI stock (which earns a D in Portfolio Grader) remains the best move.
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.