SoFi Technologies stock gave us a belated holiday gift.

SoFi Technologies (NASDAQ:SOFI) has evolved from a personal finance app into a full-fledged legitimate lender over the past few years. But not all Wall Street experts are optimistic about future prospects. In fact, one analyst recently issued a downgrade that surprised investors.

Some people see problems, others see opportunities. Therefore, value seekers and contrarian investors may want to ponder whether a downgrade, which is really just the opinion of one group of analysts, should tarnish the image of a promising fintech company like SoFi Technologies.

Of course, not everyone wants to take on a banking innovator like SoFi Technologies. It’s also not a bad idea to consider the bearish side of the argument before buying a stock. However, when all is said and done, the bull case for SoFi Technologies may actually be stronger because its stock price has fallen.

Could low interest rates be a problem for SoFi Technologies?

Looking ahead to 2024, the market is making a number of assumptions. For one thing, investors have priced in at least three interest rate cuts this year. Realistic or not, the market seems to be expecting the Fed to cut the federal funds rate by a factor of six or more.

There is also an unspoken assumption that interest rate cuts will have a positive impact on banks. Ultimately, lower borrowing costs can stimulate borrowing and lending activity, improving a bank’s bottom line.

The Bureau of Labor Statistics (BLS) reported 8.79 million job openings at the end of November, the lowest level since March 2021. According to National Financial Markets Economist Oren Klachkin, this will “please Federal Reserve officials because it is another step toward a healthier labor market environment.”

Anything that can “please Fed officials” is probably good for the U.S. banking sector and therefore good for SoFi Technologies. A cool labor market, along with soft core inflation in November, will continue to drive SoFi strength.

But maybe it’s not that simple. Mike Perito, an analyst at Keefe, Bruyette & Woods, seemed to suggest that lower borrowing costs could actually be a problem for SoFi Technologies.

In a move that surprised investors, Perito downgraded SOFI stock to Underperform from Market Perform and lowered his price target on the stock from $7.50 to $6.50. First, he cited concerns about SoFi Technologies’ valuation, which has risen since the stock rose in December.

“SOFI’s stock price remains polarized, but noise aside, we believe a more cautious stance is appropriate whenever a growth stock is trading at a premium valuation with a potential 15-20% downside to consensus EBITDA,” said Keefe, Bruyette & Woods analysts. I warned you.

Additionally, analysts observed that SoFi Technologies has increased the value of its loan portfolio based on higher interest rates. A lower rate in 2024 could weigh on the book value of the company’s loans.

Overreaction and opportunity

Not much happened at SoFi Technologies on January 3, so it’s reasonable to conclude that Perito’s rating downgrade, price target cut, and cautious commentary triggered a selloff in SOFI stock that day. As of noon on this day, the stock price had fallen 13%, showing a fairly steep decline.

It’s funny to see people panicking on social media in situations like this. No doubt some traders felt frustrated when they missed the SoFi Technologies stock rally in December. Now that the stock price has fallen back to cheap levels, people are afraid to press the ‘buy’ button.

Keefe, Bruyette & Woods analysts had a valid point about SoFi Technologies’ high valuation, but they single-handedly lowered it. If sellers push it another 5% or 10% lower, SoFi Technologies stock will be almost irresistible to contrarian investors.

The claim that lower interest rates will reduce the value of a company’s loan portfolio is not new information to the market (like in an earnings report, for example). These are just newly released bearish estimates and claims from a group of analysts. Nothing more, nothing less.

None of this denies SoFi Technologies’ better-than-expected third quarter 2023 results. It also doesn’t eliminate the impact this year’s interest rate cuts will have on the economy. So, it’s a good idea to consider all the comments carefully to set a purchase price and stick to it, not letting intraday volatility sway you from a perfectly good opportunity for SoFi Technologies stock.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.