Is This E-Payment Stock Worth the Risk Right Now?

AFRM has shed almost 50% since the start of 2022

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Affirm Holdings, Inc. (NASDAQ:AFRM) is gearing up for earnings, due out after the close just two weeks from now on Thursday, Feb. 10. Wall Street analysts are expecting losses of 31 cents per share for the fiscal second quarter, which is a step up from last quarter's losses of $1.13 per share.

Yesterday, Affirm launched two additions to its product suite: the Affirm SuperApp and Chrome browser extension. The company's SuperApp puts its shopping, payments, and financial services all in one spot, while the Google Chrome browser extension allows consumers to use its payment tool virtually all retail websites.

The launch gave the stock a boost during Wednesday's session, though AFRM has erased these gains and more today, last seen down 9.8% to trade at $50.30. The payments name is joining a sector-wide slump, thanks to news that the Federal Reserve is hinting at upcoming rate hikes. Today's nosedive has AFRM set for its lowest settlement since mid-May. The stock already suffers a 49.9% year-to-date deficit, with shares guided lower by the 10-day moving average for most of January. 

afrm jan 27

A round of bear notes may be overdue, too. Of the 12 analysts covering AFRM, seven say "buy" or better, compared to five "hold" ratings, and not a single "sell." Plus, the 12-month consensus price target of $117.73 is a hefty 134.6% premium to current levels. 

Despite this dramatically negative price action, Affirm stock could still be an intriguing growth play. The financial company has increased revenues a jaw-dropping 265% since fiscal 2019 and is estimated to grow revenues $1.88 billion next year. Moreover, AFRM is also expected to finally see an improvement on the bottom line in fiscal 2023.

However, the stock's fundamentals are relatively weak. Despite its fast revenue growth, Affirm is also losing money at a quick rate. For example, the financial company’s yearly net income has decreased by nearly $600 million since fiscal 2019, having generated $733.6 million in net loses over the past 12 months. AFRM's balance sheet also offers very little buffer to cover the net losses, with just $1.44 billion in cash and $2.22 billion in total debt. In addition, Affirm stock continues to trade at a very rich price-sales ratio of 32.97, ultimately making it an extremely risky investment at this time.

 

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