Shares of SoFi Technologies shot up to $9.8 during today's morning trading session -- an increase of 8.8% that brings the stock 17.0% over its average analyst target price of $8.38. This may imply limited upside for the Diversified Financial stock, whose analysts give it a consensus rating of hold, and target prices spanning from $4.0 to $12.0 dollars per share.
The market sentiment on SoFi Technologies seems pessimistic because the proportion of shorted shares in its float is quite high at 17.9%. Each short position represents an investor's expectation and hope that the stock's price will reverse course and start declining.
Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.
A possible indicator of market sentiment on a stock (besides its share price, of course) is the portion of institutional investors that make up its shareholders. Institutions such as banks, hedge funds, and wealth managers deploy significant resources towards identifying good investments. If they are invested heavily in a given company's stock, it could mean it's a good investment. Or it could mean the company is being targeted by a takeover attempt.
For what it's worth, institutions own 41.9% of SoFi Technologies's shares, which is an average amount. It means that many institutions are invested, but not to the extent that they would be in a stock such as Apple or Amazon, whose institutional ownership rates hover around 60%. Bear in mind that institutional ownership is just one piece of the puzzle in determining market sentiment, and you should not consider this factor alone in making an investment decision.
Overall, there is negative market sentiment on SoFi Technologies because its an analyst belief that shares are overpriced, a hold rating, an unusually large proportion of its shares sold short, and only a small number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.
Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are SOFI's recent cash flows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | -7,227,139 | 111,409 | -7,338,548 | 0.14 |
| 2022 | -7,255,858 | 93,201 | -7,349,059 | -424.01 |
| 2021 | -1,350,217 | 52,261 | -1,402,478 | -188.42 |
| 2020 | -479,336 | 6,932 | -486,268 | -426.7 |
| 2019 | -54,733 | 37,590 | -92,323 |
