SoFi’s Secondary Offering By Selling Shareholders Provides a Buying Opportunity

Stocks to buy

SoFi Technologies (NASDAQ:SOFI) announced on Nov. 15 that a number of its original shareholders were going to sell some of their shares. This included Softbank (OTCMKTS:SFTBY), and some VC/private equity firms (Silver Lake Partners, Qatar Investment Authority, Red Crow Capital, LLC, etc.). The resulting sale of SOFI stock has pushed down the price by about 12% or so off of its recent peak to $20.37 as of today.

the Social Finance (SoFi stock) logo is displayed on a smartphone.

Source: rafapress / Shutterstock.com

This provides another good buying opportunity for value investors. This is especially the case since SoFi’s Nov. 10 release of Q3 earnings was a stellar showcase of its ongoing growth. I wrote about this recently describing why I think SOFI stock is worth at least $25.00 per share.

As a result, this dip in SOFI stock provides a potential upside of at least 20% to $25 from today’s price. It’s also possible the stock could go higher based on some analysts’ estimates.

The Selling Shareholders

Normally I would be hesitant to buy the shares of a stock where insiders are selling. I am not that concerned this time since the 50 million shares sold by the seven sellers are not large as a percent of their total holdings.

For example, Softbank, which previously was one of the largest owners of SOFI stock, having a 14.6% stake, is selling 22.5 million of the 50 million in the secondary offering.

However, that represents just 19.1% of their prior holding of 117.795 million shares. You can see this on page S-7 of the company’s latest prospectus. As a result, they will still have a large stake, 11.8% of the company’s shares post the sale.

In fact, none of the selling shareholders are getting rid of all of their shares. The second-largest shareholder, Silver Lake Partners is lowering its stake to just about 3.9% from 4.9% prior to the sale.

Moreover, these large shareholders, which altogether owned 39.8% of SOFI stock prior to the secondary offering, cut their stake as a group to just 32.9%. That is a drop of just 6.9% of SOFI stock into the public market. The sale, then, represents just 17.33% of their prior total holdings.

Look, you can’t punish a stock for insiders that are taking a profit. The only issue is, if, in the future, they continue to reduce their shares. Then I might start getting concerned.

But until then, I am not concerned. Keep in mind, this does not dilute existing shareholders. The company is not selling new shares. If anything, it increases the public float, which will allow the company to have a more realistic valuation. The vast majority of shares are now in the public float.

Where This Leaves Investors in SOFI Stock

Analysts on Wall Street are still quite positive on SOFI stock. For example, six Wall Street buy-side analysts that have written on the stock in the last 3 months have an average price target of $26.33, according to TipRanks. That represents a potential upside of over 29% for SOFI stock.

Similarly, Seeking Alpha‘s survey of eight Wall Street analysts shows that their average price target is $25.71. This offers an upside potential gain of over 26% in SOFI stock today.

It’s interesting to note that the convertible notes that the company sold in late September had risen substantially in value as they recently reached “in-the-money” status. I wrote about this on Oct. 7, indicating that the average conversion price was $22.41.

At the time of the sale, the conversion price was 40% over the price of the stock. I wrote that this meant that institutional shareholders were probably estimating that SOFI stock was bound to rise. Moreover, the coupon was set at 0%. So all of these points were indications that the stock was undervalued.

This is still the case. I suspect that the price will rise over the conversion price again, as it was several weeks ago. Look for SOFI stock to reach $25 well within the next year.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

Articles You May Like

Oil prices finish lower as downbeat China data ease demand prospects
Why the Latest Fed Moves Won’t Derail the Holiday Rally
Nike just laid out an ambitious turnaround plan. But it will come at a cost.
Why Short Squeeze Stocks May Be 2025’s Hidden Gems
SoftBank CEO and Trump announce $100 billion investment in U.S. by firm