Most investors would focus on banking stocks or even consumer discretionary stocks when realizing that the Federal Reserve (the Fed) has just started cutting interest rates at the most aggressive pace in 16 years. The reason is that, as financing becomes more flexible and available, consumer trends may strengthen, and they actually have.
Recent retail sales reports show recovery for the United States economy, and while that might be good for the upper consumption hierarchy today, investors need to understand that the value chain will move from consumer products to other items like automobiles and property. Today, the real estate sector shows several indicators pointing to a bottom, and that’s where shares of SoFi Technologies Inc. (NASDAQ: SOFI) come into play for the coming quarters.
This trend is amplified and crystallized in the way outside backers have helped SoFi scale recently, namely those at Fortress. They recently injected a significant amount of capital ahead of the new real estate and mortgage cycle to help SoFi gain the right exposure and deliver the sort of profits Wall Street analysts expect today.
How Real Estate Market Trends Could Fuel SoFi Stock Growth
Here are a few indicators for investors to watch out for in the real estate sector. Starting with supply, the pace of building permits and housing starts have both reported annual contractions, creating potential supply bottlenecks when and if these interest rate cuts spark new housing demand moving forward.
Demand is not much to speak of yet, as the mortgage market index is still hovering near a 1996 low. This lack of demand and slowing sentiment from homebuilders today will likely cause home prices to come down in the coming quarters.
The combination of lower home values and lower mortgage rates as a result of Fed interest rate cuts could create a new wave of homebuyers in need of mortgage financing, helping SoFi stock’s earnings and valuation. Knowing that there is a profit to be made, new backers helped SoFi position itself.
Fortress announced in a recent press release that they would be giving SoFi a new $2 billion loan platform to allow for further fees and lending capacity so that SoFi can take advantage of the new cycle coming up. The market seems to like this new setup, as bulls raided SoFi stock to bring it higher by as much as 40% in the past week.
Wall Street's Take on SoFi Stock
Now that the foundation has been set for a potentially bullish thesis on SoFi stock, investors need to check whether Wall Street agrees with this new view and the company's future potential.
The answer is that there isn't much feedback yet, which probably means that analysts are still crunching the numbers on how the real estate trends and the new Fortress facility could impact the stock's valuation in the future. However, investors must consider the previous views for SoFi before real estate slows down to where it is today.
Halfway through 2022, price targets for the company hovered around $15 a share. Considering that the company has grown since then, investors might assume that valuations should be thereabouts, if not higher. This still calls for up to 50% upside from where the stock trades today.
Seeing the stock trade at 95% of its 52-week high, investors can safely assume that bullish momentum favors the stock today. This puts pressure on these analysts to reiterate their ratings and valuations today so that they can reflect a view closer to reality, considering the new developments in the company.
Other indicators show investors why SoFi stock might be gearing up for a major rally. Bearish traders reduced their holdings over the past month, as seen in the company's short interest decline of 2.9%, which shows signs of bearish capitulation.
Still, despite the recent decline in short interest, it is still 17.9% of the entire float. This high level of short interest could trigger a short squeeze if the stock were to experience another sharp rally, such as the one sparked by the Fortress news.
Then, there is the institutional buying side of things. Dimensional Fund Advisors decided to boost their positions in SoFi stock by as much as 263.3% as of August 2024, netting their position at up to $86.5 million today for 1.3% ownership in the entire company.
