With a year-to-date gain of 49%, buy-now-pay-later (BNPL) giant Affirm (AFRM) is outperforming the S&P 500 Index ($SPX). Even more impressively, AFRM stock has risen 124% over the last six months.
After two years of mind-boggling returns, what is next for Affirm shares?
Affirm Stock Hits a 52-Week High
Affirm hit its 52-week high on Dec. 5 of $72.82. The company has told a story of solid execution and strong growth led by continued partnerships. In 2021, it partnered with Amazon (AMZN) to bring its BNPL solutions to the company’s e-commerce platform and there has been no looking back since then. Last year, it expanded its partnership with Amazon and is now available on the company’s business-to-business (B2B) store.
Affirm has also partnered with leading companies like Walmart (WMT), Apple (AAPL), and Shopify (SHOP), which puts it in a good position to capture consumers' growing adoption of BNPL. Last month, Affirm added Priceline, which is owned by Booking Holdings (BKNG), and JD Sports to the ever-growing list of companies integrating its BNPL solutions into their payment options. Moreover, in November Affirm launched in the United Kingdom as it expands outside the United States.
Affirm Expects to Turn GAAP Profitable This Fiscal Year
These partnerships have helped keep Affirm’s topline growth in the top gear. Its total revenues rose 46.3% to $2.3 billion in its fiscal 2024 that ended June 30, 2024. The company continued its growth streak in the current fiscal year with revenues rising 41% year-over-year to $698.5 million in fiscal Q1. It forecast revenues of $790 million at the midpoint for the current quarter, implying a YOY rise of 33.6%. Analysts are modeling a 33.4% and 21.5% YOY rise in the company’s fiscal 2025 and 2026 revenues, respectively.
Affirm’s active consumer count is nearing 20 million and it is now realizing significant revenues from the ads that merchants place in its app. The company has been gaining market share in the BNPL market which itself is growing fast. In its fiscal Q1 2025 shareholder letter, Affirm said that it estimates that the gross merchandise value (GMV) of pay-later transactions reached 7.4% of total U.S. e-commerce sales in the June quarter, adding 1 percentage point in the trailing 12 months. At the same time, Affirm’s share of these transactions rose to 34% as compared to 32% in the corresponding quarter last year.
Affirm expects to post a GAAP operating profit in the final quarter of this fiscal year. Put simply, Affirm has grown at a brisk pace without losing sight of profitability, unlike many growth companies that are struggling to strike a balance between the two.
AFRM Stock Forecast: Analysts Are Increasingly Bullish
Sell-side analysts have turned bullish on Affirm and it is now rated as a “Strong Buy” by over 44% of the analysts actively covering the stock while the corresponding number three months prior was just about 24%. The stock’s current consensus rating of “Moderate Buy” is also a notch higher than the “Hold” rating it had three months ago.
Affirm now trades more than 30% higher than its mean target price of $54.38, based on Wednesday's closing price. Even the Street-high target price of $75 is just about 4% higher, which implies that brokerages don't see huge returns for AFRM stock in 2025.
Should You Buy AFRM Stock?
Affirm stock trades at a forward price-to-sales multiple of 6.9x, which is significantly higher than the 4.6x that the multiple has averaged over the last year, and quite close to last year’s peak of 7.4x.
Affirm’s business might perform well into 2025 led by its partnerships, international expansion, continued growth in the BNPL industry, and the company’s enviable underwriting abilities that have set it apart from many peers. It should also become a sustainably profitable business in 2025 as management is quite optimistic about GAAP profitability in its fiscal Q4 2025.
However, I don’t find the valuations compelling at these levels and would be taking some profits off the table here after the recent rally. While the stock might still see a bit of run-up from these levels amid what looks like a possible year-end “Santa Claus” rally, the risk-reward balance has started to look a bit unattractive at these prices.
