Is AFRM A Buy Now Or A Sell? What Affirm's Fundamentals, IBD Ratings, Stock Chart Say

When it comes to investing in fintech companies and the financing concept of BNPL — buy now, pay later — Affirm stock comes immediately to mind. But now, Affirm is fighting to stop the worst decline in its short history.

Affirm (AFRM) shares fell more than 25% during the week ended Feb. 11 following fourth-quarter results. And more sellers have since come out of the woodwork following disappointing guidance for 2022. On Monday, AFRM slumped another 6% and looks poised to undercut a near-term low of 32.29.

In late February, analysts at Barclays cut their price target on Affirm to 65 from 105, Benzinga reported.

Is Affirm Stock A Buy Now?

At this point, should bullish investors in Affirm consider the current pullback a golden opportunity? Or is it time to sell?

This story addresses aspects of IBD's CAN SLIM investment paradigm, coined by the legendary growth stock trader and founder of Investor's Business Daily, William O'Neil. This piece analyzes the potential investment from multiple viewpoints: fundamental, technical and the quantity and quality of institutional ownership.

Without all three positive elements in place, a growth investor sports a smaller chance of reaping an outstanding market-beating gain over the long run.

Affirm likely scared the wits of shareholders on Nov. 10.

When Will AFRM Bottom Out On Its Chart?

The stock nose-dived 15% in the heaviest volume in more than three weeks. A total 22.5 million shares exchanged hands that day, 42% above its average turnover over the past 50 sessions. But after reporting third-quarter results late that day, AFRM rose as much as 24% intraday on Nov. 11, then settled at 151.83. Good for a 13.7% gain.

Yet that week turned out to be the current top in Affirm stock. And sellers have been in charge for months.

On Dec. 16, AFRM sank more than 10% in heavy trading. The Consumer Financial Protection Bureau later announced a probe of BNPL firms. Dow Jones Newswires reported that federal regulators are investigating Affirm, Klarna Bank, Afterpay and other competitors for the first time.

Affirm shares ended 2021 at 100.56, up a measly 3% from the closing price of its Nasdaq debut on Jan. 13 that year. This year, the stock has now collapsed as much as 67% year to date.

Before this sell-off, AFRM stock was already showing troublesome technical action on its stock chart. An early gain of as much as 2.5% on Nov. 29 melted into a 3.5% loss. Plus, the stock got turned away at a critical technical level on its chart, the 50-day moving average.

The fintech company, started by Max Levchin, entrepreneur and member of Silicon Valley's "PayPal mafia," has also completed a disappointing round trip of gains from the initial public offering at $49 a share in January.

Affirm Stock Today: The IBD Ratings Picture

IBD Stock Checkup shows Affirm's Composite Rating has nose-dived to a sickly 5 on a scale of 1 to 99.

That score compares unfavorably with Affirm's industry peers in consumer credit and banking giants, including American Express (AXP) (a falling, yet healthier, 75 Composite score), Mastercard (MA) (76),  JPMorgan Chase (JPM) (44) and Discover Financial (DFS) (55).

Ideally, focus on companies with a 90 Composite or higher. However, newer issues often have no earnings history or a very slim record of profitability. For Affirm, the San Francisco-based company lost $1.75 a share in fiscal 2021, ended in June. The Street sees more net losses in FY 2022 (recently revised lower to -$1.87 a share) and FY 2023 (-$1.25).

According to MarketSmith, Affirm now has 284.5 million shares outstanding and a float of 183.5 million freely traded common shares.

On the positive side, Affirm has grown the top line at lightning pace; revenues have grown 86%, 89%, 120%, 98%, 57%, 67%, 71%, 55% and 77% vs. year-ago levels in the past nine quarters. In the December quarter, the top line hit a record $361 million, up 77% vs. a year ago.

"Legacy payment options, archaic systems, and traditional risk and credit underwriting models can be harmful, deceptive, and restrictive to both consumers and merchants," the company wrote in its 424b IPO prospectus, filed with the Securities & Exchange Commission." We believe that they are not well-suited for increasingly digital and mobile-first commerce, and are built on legacy infrastructure that does not support the innovation required for modern commerce to evolve and flourish. Our platform is designed to address these problems."

Affirm counted 11.2 million active customers for the fiscal second quarter ended in December, up 150% vs. the same three-month period a year earlier. Active merchants on the platform, meanwhile, leapt 2,030% to 168,000. Gross merchandise volume, net of refunds, soared 115% to $4.5 billion.

However, Affirm still posted another quarter of heavy losses. Q4 net loss of 57 cents a share more than quintupled the 11-cent loss seen in the same period of 2020.

The Street expects the company to bleed red ink quite a while.

Yahoo Finance shows analysts on consensus expect a net loss of $2.67 a share this year and a net loss of $1.84 in 2023.

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