SoFi Stock Drops 30 Percent—Should You Buy the Dip?

SoFi Technologies (SOFI) stock closed at $18.08 on July 5, which marked a nearly 30 percent decline from the peak it attained soon after closing the SPAC merger with Chamath Palihapitiya–backed IPOE. Will SoFi stock go back up? Is Reddit’s WallStreetBets community plotting a SoFi stock short squeeze?

SoFi provides a range of digital financial services. Its Robinhood-like SoFi Invest tool lets people trade stocks and cryptocurrencies on their smartphones. The company's SoFi Money services help people manage their cash.

Many investors think that SoFi is the next Amazon (AMZN), PayPal (PYPL), and Square (SQ) considering how it’s disrupting its target markets. Amazon, PayPal, and Square stocks boast lifetime returns of 180,000 percent, 1,700 percent, and 690 percent, respectively.

Some SoFi investors were subject a lockup period following the company’s public debut. The lockup restrictions were conditioned on stock performance. The way SoFi stock performed in its first month on the market lifted lockup restrictions for some investors. As a result, the flood of new shares coming to market has weighed on the stock.

There are many reasons to think that SoFi stock will rebound. First, it’s normal for newly public stocks to come under pressure after the lockup period expires and this is usually a temporary pullback.

Second, SoFi is a great business with bright prospects. The company continues to expand its offerings, which is widening its addressable market and revenue opportunity. SoFi plans to open a bank and is waiting for regulatory approval. If approved, operating a bank would make SoFi’s credit business more lucrative.

The Fed is expected to start raising interest rates sometime in 2022. That would enable an environment for SoFi to generate more interest-based income. It’s also worth noting that the rise of crypto investing bodes well for SoFi.

In December 2020, SoFi stock’s predecessor IPOE fell to what still persists as its all-time low at $10. Investors who bought that dip have seen their money grow more than 70 percent.

Although up sharply from its record lows, at the current price SoFi stock still trades more than 35 percent below its all-time high. That might be an opportunity for investors who have been waiting for a chance to buy the dip.

Wall Street has an average target price of $25 on SoFi stock, which implies nearly 40 percent upside potential to the current level. The high target price of $30 suggests more than 65 percent upside.

Retail investors are taking a keen interest in SoFi stock after the lockup expiry and pullback from its peaks. Now, SoFi ranks among the most-mentioned stocks in Reddit’s WallStreetBet community. WallStreetBets is known for initiating the epic short squeeze in GameStop and AMC stock.

Many investors are betting on SoFi stock. According to Fintel data, SoFi stock carries a short interest of more than 17 percent. Such a high level of bearish bets could trigger a short squeeze.