SoFi stock price tanked by over 6% in the extended hours as concerns about increased dilution continued. It dropped to $27.7 from the closing price of $30, and 15% below the highest point this year. So, is the ongoing sell-off warranted?

SoFi stock price tanks amid dilution fears

SoFi, a top American fintech, came under pressure after a report that it was considering raising $1.5 billion from investors in a share sale that will increase its outstanding shares.

The company is working with Goldman Sachs, with the expected share sale range being between $27.50 and $28.50, a discount from where it was trading on Thursday.

According to Bloomberg, the company hopes to use this new cash to enhance its capital position and to fund new opportunities. This is the second capital raise that the company has made in the last two years.

SoFi has seen its outstanding shares rise gradually in the past few months. It now has 1.20 billion outstanding shares, up from 794 million in 2021.

The capital raise is also notable because the company ended the last quarter with a solid capital position. Its tier-1 risk-based capital ratio is 20%, much higher than the required minimums. 

SoFi business is doing well and could be included in S&P 500 Index 

The most recent results showed that SoFi continued doing well in the third quarter as its financial supermarket business model is thriving. Its revenue rose by 38% to $950 million, while the adjusted EBITDA rose by 29% to $277 million.

Most of this revenue came from fees, which rose by 50% to $409 million. Higher fee revenue is important in an era when the Federal Reserve is cutting interest rates.

The company had other bullish factors, including a surge in loan originations and total deposits, which rose by $3.4 billion to nearly $33 billion.

SoFi’s main benefit is that if offers numerous services that cater to a large population. This includes its banking solutions, credit cards, invest, and loans. As a result, the number of customers has jumped to over 12 million, up from the 3.4 million it had in 2021.

There are signs that SoFi is not all that overvalued, especially when you consider its revenue growth and its margins. Data shows that its revenue growth is ~38%, while its adjusted EBITDA margin is 29%, giving it a multiple of 67%.

The other potential catalyst for the SoFi stock price is that it is one of the companies that may be included in the S&P 500 Index as part of the quarterly reconstitution. Such a move would push its stock significantly higher from where it is today. It is also set to launch SoFi Crypto soon.

SoFi share price technical analysis 

SoFi share price chart | Source: TradingView

The weekly chart shows that the SoFi stock price has been in a strong uptrend in the past few years, moving from a low of $4.28 to nearly $30. 

A closer look at this chart shows that it has formed a cup-and-handle pattern, which consists of a horizontal resistance and a rounded bottom. It is now in the handle section, which explains its current volatility.

SoFi stock price has remained above the all moving averages and the Supertrend indicator. Therefore, the most likely scenario is where it surges in the next few months, potentially to the psychological level at $35. 

The bullish SoFi share price outlook will become invalid if it moves below the key support level at $23.50.

Read More: Here’s why SoFi stock price is surging and why it could soar 52% soon

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