Affirm Holdings is the IBD Stock of the Day ahead of the consumer financing firm's fiscal fourth quarter earnings report on Aug. 28. Affirm stock is trading around some buy points.
Wall Street analysts say the San Francisco-based company has been gaining share in the buy now, pay later (BNPL) market. With BNPL options, consumers pay off purchases in monthly installments, either with low interest or none at all. Also, Affirm is expanding into other financial services.
Oppenheimer analyst Rayna Kumar initiated coverage of Affirm stock in July with an out-perform rating.
"Affirm stands out as a leader in the BNPL space with its advanced underwriting, robust funding strategy, strong merchant relationships, and transparent pricing model," Kumar said. "Collectively, these factors should enable ongoing share gains in the fast-growing BNPL market."
On the stock market today, Affirm stock gained a fraction to close at 74.86.
Affirm stock cleared a 73.11 buy point from a very deep cup-with-handle on Monday. Shares dipped just back below that entry on Tuesday, but are still above two trendlines topped early Monday.
Affirm earnings for fiscal Q4 are expected to surge 187% to 12 cents a share, with revenue up 27% to $837 million. Results aren't due until Aug. 28.
However, Sezzle and digital payments giant Block, which has its BNPL service Afterpay, are due on Thursday.
BNPL Market: Stiff Competition
Affirm competes vs. Sezzle, Block's Afterpay, PayPal Holdings, the soon-to-go-public Klarna and many other BNPL providers. Many top credit-card issuers, such as Chase, now offer their own version of BNPL creating more competition.
The company's underwriting technology for consumer transactions aims to responsibly extend access to credit to as many people as possible while maintaining its targeted unit economics.
"We believe Affirm's risk platform is a key and sustainable differentiator that will continue to drive outperformance over time, especially in a more challenging economy,' said Evercore ISI analyst Adam Frisch in a recent report.
He added: "It is the basis for their current success and provides the foundation for layering in additional products that have the potential to create a formidable financial services flywheel."
Affirm gets most of its revenue from transaction fees paid by online retailers. In addition, Affirm gets about one-third of its revenue from interest income paid by consumers.
Affirm Stock: BNPL Market Booms
In the BNPL market, Affirm's partners include Amazon.com, Walmart, and Shopify, with Shopify reporting earnings early Wednesday. Apple also has an agreement with Affirm.
Consumers typically use BNPL for big purchases. During the Covid emergency, Affirm's biggest customer was fitness gear maker Peloton Interactive. Consumers also typically buy furniture, electronics and household appliances. But the BNPL market is evolving as consumers use the BNPL option for smaller purchases.
"Buy now pay later and Affirm are gaining share of overall consumer spending," said Susquehanna analyst James Friedman in a recent report. "BNPL as a payment method is gaining relevance online and in-store, powered by debit cards and integrations into in-store payment terminals."
BNPL use is expected to account for about $100 billion in transactions this year. Consumer credit scores are supposed to start incorporating BNPL loans later this year.
But since BNPL loans don't currently show up on credit reports, banks and other traditional lenders have had limited visibility into how much debt borrowers are actually carrying. Earlier this year, Affirm became the first major BNPL provider to start sharing all consumer data with credit bureaus.
AFRM Stock: New Business Initiatives
A new debit card is picking up traction with consumers, analysts say. The Affirm debit card links to consumer checking accounts at banks or Affirm's Money Account. It allows consumers to pay for purchases right away or request to pay for purchases over time. Analysts expect the debit card to help Affirm further penetrate in-store shopping.
Friedman said: "The Affirm Card continues to see strong traction among customers. Last quarter, the Affirm Card had $807 million in volume, up 115% year-over-year, and its in-store gross merchandise volume grew over 150%, showing the demand for in-store BNPL purchases, a trend we expect to continue."
Affirm Stock: Technical Ratings
Almost all Affirm revenue is generated in the U.S. It recently expanded into the U.K. market.
Meanwhile, AFRM stock holds an IBD Composite Rating of 92, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Further, Affirm stock has an Accumulation/Distribution Rating of A-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
Meanwhile, AFRM stock has a 21-day ATR of 5.08%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs.
IBD suggests stocks with ATRs of up to 8% in the current market.
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