Why SoFi stock fell 16% this week

stock SoFi technology (Sophie -2.38%) Banks and fintech services stocks fell 16.6% this week, according to data provided by S&P Global Market Intelligence, after a prominent Wall Street analyst downgraded them.

This analyst is cautious about SoFi stock.

Keefe, Bruyette & Woods analyst Mike Perito downgraded SoFi to underperform the market and lowered his price target for the stock to $6.50 per share from $7.50 in a note to clients early Wednesday.

To justify the relative weakness, Perito noted that SoFi stock is up more than 40% since its stellar third-quarter report in early November. He also worries that falling interest rates next year could weigh on SoFi’s earnings, given fair value accounting. Specifically, this is because it relates to the reported value in a given quarter of the unsecured personal loans that SoFi holds on its balance sheet.

Perito estimates that each quarter-point cut in the federal funds rate this year could impact SoFi’s reported earnings by about $50 million, or about $0.05 per share.

What’s next for SoFi investors?

In fact, I wrote an article a few months ago explaining why the Fed’s interest rate hikes have only helped accelerate SoFi’s path to growth and profitability. However, in the same article I highlighted SoFi CEO Anthony Noto’s comments: SoFi detailed how SoFi is able to maintain its own interest rates for much longer thanks to its national banking charter and superior cost structure compared to traditional banks. Even if the federal funds rate begins to fall, it remains higher than its competitors.

SoFi management predicts that the company will report its first generally accepted accounting principles (GAAP) net income with its fourth quarter report later this month, so I’m perfectly content to use this downturn as an opportunity to add to my positions.