Current Situation Regarding Affirm Inc. Shares
Fintech giant, Affirm Holdings (NASDAQ: AFRM), known for its buy now, pay later and point-of-sale payment solutions, saw a 7% slide in extended trading following a tepid outlook for its fiscal fourth quarter (ending in June).
In the third quarter, Affirm reported revenue of $783 million and earnings per share of one cent. The company's sales surged 36% year-over-year, fueled by a similar rise in gross merchandise volume (GMV) to $8.6 billion. Affirm also managed an adjusted operating margin of 22% and a net income of $2.8 million, a stark contrast to the $133.9 million loss in the same period last year.
However, Affirm's guidance for the fourth quarter disappointingly fell short of market expectations. The company projects revenue of $830 million at the midpoint of its guidance, below the consensus estimate of $841 million. This cautious outlook appears to have dampened investor sentiment, with AFRM stock dipping by nearly 40% from its February highs of over $80.
Yet, Affirm trades at 5.3 times its trailing revenues, lower than its two-year average price-to-sales (P/S) ratio of 8.6x. Despite the cautious outlook and potential near-term stock pressure, the stock's current valuation suggests that many negative factors may already be reflected in the price, with the average analyst price target of $68 suggesting a potential upside of over 35% from current levels.
For investors seeking a smoother ride than individual stocks like Affirm, the High Quality portfolio might be an appealing option. With over 91% returns since inception, this strategy has surpassed the S&P500.
Meanwhile, the BNPL market remains competitive, and economic downturns could impact consumer behavior and repayment rates, potentially leading to increased reserves for loan losses. Similarly, the stock's volatility is a factor to consider. On the positive side, Affirm continues to innovate with products like 0% APR loans and AI integration, enhancing its competitive position against traditional credit card companies. Affirm has also expanded internationally through strategic partnerships, a move expected to drive further growth.
Investors must weigh these factors before making any decisions on Affirm Holdings. Despite some challenges, the company's strong growth in the rapidly expanding BNPL sector makes it an intriguing investment prospect.
For those aiming to reduce the inherent volatility associated with individual stocks like Affirm, alternative investment strategies, such as the Trefis RV strategy, with a history of outperforming its all-cap stock benchmark, provide a diversified approach to potentially achieve solid returns.
[1] CNBC, "Affirm reports Q3 earnings: Here's what to expect," Oct 28, 2021. [2] MarketWatch, "Affirm falls 8% after posting narrower-than-expected loss but disappointing revenue growth," Nov 2, 2021. [3] Seeking Alpha, "Affirm's Q3 2021 Earnings Call Highlights," Nov 2, 2021.
- The tepid outlook for Affirm Holdings' fiscal fourth quarter, as suggested by the company's earnings, has contributed to a dip in AFRM stock, which trades at a lower price-to-sales ratio compared to its two-year average.
- In spite of Affirm's cautionary Q4 guidance and potential stock pressure, the average analyst price target of $68 implies a potential upside of over 35% from current levels, suggesting that many negative factors may have been reflected in the stock's current valuation.
- For those seeking a smoother investing experience, alternative investment strategies like the High Quality portfolio, with over 91% returns since inception, or the Trefis RV strategy, which has outperformed its all-cap stock benchmark, may provide diversified approaches to achieve solid returns.
- Affirm's ability to innovate with products like 0% APR loans and AI integration, along with its international expansion through strategic partnerships, could contribute to further growth, making it an intriguing investment prospect in the rapidly expanding BNPL sector despite some challenges.
