Fintech stocks garnered significant investor attention during the height of the COVID-19 pandemic. Affirm Holdings, Inc. (AFRM - Get Rating) was one of the beneficiaries in the industry, as it witnessed tremendous revenue growth and record gross margins.

AFRM provides digital and mobile commerce platforms by enabling a technology-driven payments network through partnerships with banks. A consumer can use the company’s platform by selecting their repayment option while the loans are funded and issued by its bank partner. Its platform has three elements: a point-of-sale payment solution, merchant commerce solutions, and consumer-focused applications.

In the last reported quarter, AFRM surpassed consensus earnings and revenue estimates. The company’s loss per share came in 50.4% lower than the consensus loss per share estimate of $0.39. Its revenue was 3.1% higher than Wall Street’s estimate of $344.01 million.

However, AFRM’s stock has declined 70.8% in price year-to-date and 56.7% over the past year to close the last trading session at $29.32. It is currently trading 83.4% below its 52-week high of $176.65, which it hit on November 8, 2022.

Here’s what could influence the performance of AFRM in the upcoming months:

Mixed Financials

AFRM’s total operating expenses increased 32.1% year-over-year to $581.31 million in the third quarter ended March 31, 2022. The company’s adjusted operating income declined 18.8% to $4 million. Its net loss narrowed 80.9% year-over-year to $54.67 million. Also, its loss per share narrowed 84.5% year-over-year to $0.19.

Mixed Analyst Estimates

Analysts expect AFRM’s EPS for fiscal 2022 and 2023 to remain negative. Its revenue for fiscal 2022 and 2023 is expected to increase 53.8% and 42.6% year-over-year to $1.34 billion and $1.91 billion, respectively. It failed to surpass Street EPS estimates in three of the trailing four quarters.

Stretched Valuation

In terms of forward EV/S, AFRM’s 7.68x is 169% higher than the 2.86x industry average. Likewise, its 6.27x forward P/S is 121% higher than the 2.84x industry average. And the stock’s 3.25x trailing-12-month P/B is 3.7% higher than the 3.14x industry average.

Lower-than-industry Profitability

AFRM’s trailing-12-month net income margin is negative compared to the 4.25% industry average. Likewise, its trailing-12-month levered FCF margin is negative compared to the 8.03% industry average. Furthermore, the stock’s 0.21% trailing-12-month asset turnover ratio is 66.9% lower than the industry average of 0.64%.

POWR Ratings Reflect Bleak Prospects

AFRM has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AFRM has a D grade for Value, in sync with its stretched valuation.

It has a D grade for Quality, consistent with its lower-than-industry profitability.

AFRM is ranked 79 out of 82 stocks in the D-rated Technology – Services industry. Click here to access AFRM’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

Fintech companies have grown significantly over the past couple of years due to their wide applicability in payments, insurance, wealth management, lending, etc. The industry is also poised to grow significantly in the long term.

However, AFRM does not look well-positioned to capitalize on the industry tailwinds given its weak financials, stretched valuation, and lower-than-industry profitability. Therefore, we think it is best avoided now.

How Does Affirm Holdings, Inc. (AFRM) Stack Up Against Its Peers?

AFRM has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Technology – Services stocks with an A (Strong Buy) or B (Buy) rating, such as Celestica Inc. (CLS - Get Rating), Jabil Inc. (JBL - Get Rating), and ScanSource, Inc. (SCSC - Get Rating).

AFRM shares were trading at $30.70 per share on Wednesday morning, up $1.38 (+4.71%). Year-to-date, AFRM has declined -69.47%, versus a -12.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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