In recent articles on SoFi Technologies (NASDAQ:SOFI), I have been bearish on SOFI stock, for numerous reasons. Most of these reasons are short-term in nature. For example, renewed worries about macroeconomic issues like inflation and interest rates could knock the stock back lower.

Also, further headwinds related to the student loan repayment pause may also affect shares later in 2023. Yet alongside these near-term concerns, there’s also a key long-term concern.

That would be the risk that SoFi, which over the past year has become more akin to a bank, will trade at a bank stock valuation once profitable. As bank stocks trade at lower earnings multiples than tech stocks, this could be a serious drag on long-term returns for shares.

However, taking a closer look at this aspect of SoFi, I’ll admit there are some factors that may enable shares to avoid a bank stock re-rating.

SOFI Stock: From Fintech to Neobank?

SoFi Technologies is commonly referred to as a financial technology, or fintech, stock. This makes sense, given the company’s origins as a marketplace-based lender (first for student loans, then for other types of personal loans).

However, over the past year, SoFi has made some moves that make it more like Bank of America (NYSE:BAC) than PayPal (NASDAQ:PYPL). Obtaining a national bank charter, via its acquisition of Golden Pacific Bancorp, this fintech firm has become more like a digital-only bank, sometimes referred to as a neobank.

Becoming a bank is a smart move for SoFi’s underlying business. Becoming a bank enabled it to start accepting deposits. These deposits have not only helped the company to grow the net revenue of its lending segment by 45% in the past year. By offering higher interest rates on deposits than competitors, SoFi has attracted over 1.5 million additional customers to its platform. This may give the digital financial supermarket ample cross-selling opportunities.

But while good for the business, it may eventually be a negative for SOFI stock.

How Shares Could Sustain a Tech Stock Valuation

Here’s an example of why becoming valued like a bank is bad news for SOFI’s future performance. The top end of sell-side estimates calls for SoFi Technologies to earn 50 cents per share in 2026.

If SOFI stock keeps trading like a tech stock, this suggests additional runway. At a tech stock multiple (20 to 30 times earnings), hitting this earnings forecast could send it back to $15 per share. On the other hand, if the market begins to value it like a bank, applying a bank stock multiple of 10 to 15 times earnings suggests the stock, at best, will be worth $7.5o, around what it trades for today.

Nevertheless, SoFi may be able to sustain a tech stock valuation for years to come. Here’s how. A majority of SoFi’s revenue comes from its Lending segment. However, the company’s Technology Platform segment is becoming an increasingly larger part of the business.

This business unit, formed from SoFi’s acquisitions of payment software provider Galileo in 2020, and banking-infrastructure firm Technisys in 2022, is undeniably tech. If this segment becomes as significant to the bottom line as the lending unit, this may help prevent the aforementioned bank-stock re-rating from happening.

Bottom Line

So, if SoFi can avoid this re-rating (more like de-rating) scenario, are shares a buy at current prices? Not necessarily. Even if the company successfully maintains a tech stock valuation once profitable, today’s prices may not be a favorable entry point.

Unless the company can handily beat current analyst expectations, as a mentioned above, a return to $15 per share within three years may be the best SOFI can do, even at a tech multiple.

Furthermore, while perhaps more upbeat about the long term than I was before, my near-term concerns about overall macro conditions, or the situation with student loans, have not changed. Between now, and the end of 2023, shares could again retest their lows.

With this in mind, consider it best to wait for further weakness before buying SOFI stock.