When it comes to investing in fintech companies and the financing concept of BNPL — buy now, pay later — Affirm (AFRM) comes to mind.
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And Affirm stock made more than a nifty comeback in 2023. In 2024 so far, thanks to a timely rebound this week with quarterly results right on the horizon, AFRM stock has trimmed serious losses since Jan. 1 to less than 4%. The S&P 500 has lifted 4.6% and is knocking on the door of 5000, a key psychological price level for investors.
As interest rates jumped for most of the year, the fintech investing theme crumbled in 2022. Understandably, the broader stock market sell-off took AFRM stock down with it.
In the past two weeks, Affirm stock swung wildly as earnings season arrived. Yet shares ultimately did not lose much ground, down less than 3%.
Is AFRM Stock A Buy?
On Thursday morning, AFRM stock is now heading into its earnings report after the close on much firmer footing. Shares are rallying sharply, up more than 13%. And it’s now climbed above the 10-week moving average, a positive sign.
So, is Affirm stock a buy or sell now?
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Without all three positive elements in place, a growth investor faces a lower chance of reaping an outstanding gain in stocks over the long run.
A Long Road Of Market Recovery
After a devastating drop of 95% from a November 2021 peak near 176, AFRM stock took quite a while to regain its footing.
By December 2022, shares slumped to as low as 8.62. But in 2023, shares proved they had bottomed out and finished the year at 49.14, a remarkable gain of 411%.
The S&P 500 rallied 24% last year, trailing a 43% leap by the Nasdaq composite. Both indexes got pounded in 2022 as the Federal Reserve lifted interest rates dramatically in a hurried campaign to cool down inflation.
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AFRM Stock: Latest Quarterly Results
As the daily chart shows, AFRM stock gapped up 14% in brisk volume on Nov. 9 after reporting encouraging results for the September-ended first quarter. Days later, Affirm staged a nice breakout from a cup without handle and its 25.63 buy point.
Just a month later, AFRM stock rallied past 40, up more than 56% and well extended from the proper buy zone.
Once a stock breaks out, the ideal time to buy? While it’s still trading within 5% of a proper buy point.
Revenue surged 37% vs. a year earlier to $496.6 million. That marked the biggest amount of sales for any quarter in company history. And the growth in sales topped year-over-year gains of 34%, 11%, 7% and 22% in the prior four quarters.
The company continued to expand its services. For instance, Affirm made it “easier for brands to sponsor interest-free programs for specific SKUs (item codes) by introducing the ability to combine multiple financing offers in a single cart,” according to a shareholder letter detailing fiscal Q1 results.
Also, “Affirm and Shopify continue to find new ways to grow together, and the year-over-year growth rate of Shop Pay installments (powered by Affirm) GMV (gross merchandise volume) accelerated for the third quarter in a row,” Max Levchin, founder and CEO of Affirm, noted in the letter published on Nov. 8.
Levchin added that the company’s GMV growth surpassed that of U.S. e-commerce overall by three times.
Affirm has also become available as a pay option on Amazon.com.
Affirm is slated to report December-quarter results after the close Thursday.
According to Yahoo Finance, analysts on consensus see a net loss of 72 cents per share, lower than the $1.10 Affirm lost a year earlier. They also see sales rising 30% to $520.9 million.
Serious Growth
The company boasts nearly 17 million active customers and has seen gross merchandise volume top $21 billion through the end of September. San Francisco-based Affirm posted a third-quarter net loss of 57 cents a share, significantly chopping the 87 cents it lost in the year-ago-quarter.
What’s more, Wall Street has really strengthened its estimates for the company that went public in early 2021 at $49 a share.
Analysts surveyed by FactSet currently see the company earning a profit of 35 cents a share in the fiscal year that ends in June 2024. That’s an upward revision of 3 cents. Plus, they also expect earnings to grow 91% to 66 cents in fiscal 2025.
These forecasts compare so much favorably vs. net losses of $1.75 a share in fiscal 2021, $2.51 in fiscal 2022, and a record net loss of $3.34 in the fiscal 2023 ended last June.
According to Yahoo Finance, analysts on consensus believe the company will lose 72 cents a share in the fourth quarter of 2023 and 66 cents in Q1 this year. These figures may be GAAP estimates. However, Zacks shows a consensus estimate for a net profit of 7 cents in both Q4 and Q1.
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AFRM Stock In 2023 Vs. 2021 And 2022
Affirm ended 2021 at 100.56, up a measly 3% from the closing price of its Nasdaq debut on Jan. 13 that year.
In 2022, the stock collapsed as much as 91%. Yet even before that sell-off, AFRM stock had already shown troublesome technical action on its stock chart.
For instance, the stock often got turned away at a critical technical level on its chart, the 50-day moving average. This happened in late November 2021, mid-February 2022 and late March 2022. The fintech company also completed a disappointing round trip of gains from the initial public offering at $49 a share in January.
Now, however, the rally has been so strong that AFRM stock has led its key moving averages, including the 50-day line, sharply higher.
Affirm Stock Today: IBD Ratings Picture
A couple years back, IBD Stock Checkup showed Affirm’s Composite Rating dropping to as low as 14 on a scale of 1 to 99. But today, the rating has improved to 75 in recent weeks. As of Monday, the Composite stood at 68.
Ideally, focus on companies with a 90 Composite or higher. Newer issues often have no earnings history or a very slim record of profitability. So some well-performing new issues sometimes have a Composite Rating below 90.
Dragging down AFRM’s Composite Rating in large part is a weak 30 Earnings Per Share Rating. The company has not yet reached profitability. Yet this EPS score could improve dramatically if the company turns big profits in the coming quarters.
Affirm stock showed a very weak Relative Strength Rating in the past. No longer. The RS Rating remains a best-possible 99 on a scale of 1 to 99. Translation: AFRM is outperforming 99% of all companies in the IBD database over the past 12 months. Plus, MarketSmith data shows the three-month RS Rating at a very good 95.
This newfound technical strength has come amid a recent increase in mutual fund ownership.
Increasing Fund Sponsorship
At the end of December, as many as 464 mutual funds owned a piece of AFRM stock, rising a bit from 457. That’s still well below a peak of 707 funds seen in Q3 of 2022.
You want to see increasing institutional sponsorship over the long haul. That’s one hallmark of the I in CAN SLIM. You also want to see top funds buying shares. According to the Owners & Funds data table in MarketSmith, Calvert U.S. Large Cap Growth (CLGRX) owns shares and holds an A+ rating for superior three-year performance.
When investing in a growth stock, make sure it has solid company. Does it belong to a leading sector in the stock market itself? You can see the top performing sectors on a daily basis within IBD’s stock research tables via IBD Data Tables.
Meanwhile, its credit card payment and processing industry group ranks has fallen toward the bottom of 197 IBD industry groups for six-month price performance. Prefer to see the industry group rank within the top 40 among 197 industry groups, or to rise sharply up the rankings.
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Is Affirm Stock A Buy Now?
Without question, Affirm had cooled off in recent days after a torrid run. The pullback from the December peak is not surprising.
Keep a close eye on the weekly chart.
Watch to see if shares make a test of support at the 10-week moving average — drawn as a red line on the above chart. The 10-week line has risen sharply in recent weeks to 43. A strong bounce off the 10-week line could present a new opportunity to either 1) establish a new position in AFRM stock; or 2) add a smaller amount of shares to a winning position.
Indeed, the 10-week moving average has been rising and caught up with Affirm stock — just as the stock has pulled back. But since last Friday, buyers have returned and shored up the stock. Affirm is getting support at the 10-week line, which has climbed to 44.10.
So at this point, Affirm stock is a buy now, so long as shares get purchased no more than 5% to 10% above the 10-week moving average. Right now, in this case, the 5% buy zone goes up to 46.31; a 10% move from 44.10 goes up to 48.51, so buying above that price entails much more risk.
Why? If the stock whips lower again, it would force new buyers to sell and cut losses — ideally at 7% or less for every stock position. Keeping losses small is the golden rule of investing.
Keep in mind, too, that buying any stock just before earnings bears even more risk. For those who wish to wait until the results hit the wires, it would also be sensible to simply keep watching Affirm stock. After all, it is also in Week 6 of a brand new base.
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Final Thoughts On Affirm Stock
IBD research on the best stock market winners has found a strong boost off the 10-week line would warrant a new buy as well as a chance to add shares to a winning core position.
Also, Affirm stock could go on to build another one of seven bullish bases often seen in big stock market winners before they take off on big price runs. Stay mindful of the 5% buy zone once the stock breaks out past the proper entry.
Keep in mind these two sell rules.
First, keeping losses manageable, ideally at no more than 7% from your purchase price, allows you stay solvent and in the game. It’s far easier to recover from a 7%-8% loss than a 25% or 50% deficit.
Second, in most cases, an investor can take profits in growth stocks once they have rallied 20% to 25% past the buy point. While hard to do, selling on the way up not only locks in hard-earned gains, but also helps shield the portfolio from a drawdown during an inevitable pullback.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
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