SoFi stock price has crashed by over 50% from its highest point this year amid rising concerns about dilution, growth, and competition. It was trading at $16.27, down substantially from last year’s high of $32.70. So, is it safe to buy the dip or wait for more downside?
Why SoFi Stock Price Has Plunged
SoFi Technology stock has dropped sharply this year as more investors have continued shorting the company. Data shows that the short interest has jumped to 11% this year from a low of 5% last year.
Short sellers are concerned about the company’s dilution after the management decided to raise capital by selling shares earlier this year. It raised over $1 billion to fund its growth. This fundraising came a year after the company did the same thing. As a result, the number of outstanding shares has jumped to 1.27 billion from 1.1 billion last year.
SoFi stock has also plunged after Muddy Water, a popular research company, published a report accusing the company of manipulating its loan book and having a higher default rate than other similar companies.
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It also pointed to the inaccuracies about SoFi accounts, including the Secured Loan program, which has about $312 million in unreported borrowings. Historically, investors often panic when there is a major short seller report such as the one that Muddy Waters published.
SoFi has denied these claims and maintained the integrity of its business. The most recent results showed that the company’s business continued to do well in the fourth quarter, with the net revenue rising by 37% to over $1 billion and its EBITDA moving to over $318 million.
The company has benefited from its all-in-one platform, which offers solutions like banking, credit cards, investing services, loans, and crypto solutions. Its goal is to capture young people as clients and grow with them over the years.
Analysts expect that the upcoming results will provide more information about its growth trajectory, with the average estimate showing that its revenue rose by 36% in the first quarter to over $1.05 billion. The estimate is that the annual revenue will jump by 30% to $4.6 billion, followed by $5.2 billion next year.
SoFi Technology Stock Price Technical Analysis
The daily timeframe chart explains why the SoFi share price crashed. It formed a giant head-and-shoulders pattern between September 2nd and January this year when it moved below the neckline.
By measuring the distance from the head and the neckline, we see that it is trading at the pattern’s target.
It has moved below the 61.8% Fibonacci Retracement level and is slowly forming a falling wedge pattern, which often leads to a strong bullish breakout. The Average Directional Index (ADX) has moved sideways in the past few days, a sign that the selling momentum has faded.
Therefore, the most likely scenario is where the stock bounces back in the near term, especially when it publishes its financial results. If this happens, the next key target to watch will be at $25, the neckline of the head-and-shoulders chart pattern, which is about 52% above the current level.
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