Affirm Stock Down 19% in April – Time to Buy AFRM Stock?

The price of Affirm stock has gone down 19% since the month started after a clear rejection of a move above the $50 threshold in the past few days.

Just today, the company announced that it extended its agreement with Poshmark, an online marketplace for new and second-hand apparel, for two more years to keep offering its customers the alternative to buy items within the store now and pay for them later.

The press release stated that this agreement will continue to give Affirm exposure to Poshmark’s user base of 80 million active consumers who may opt to use the company’s financing alternative. Shares barely moved despite the positive tone of this announcement.

Last month, Affirm updated its guidance for the upcoming third quarter of the 2022 fiscal year. According to the management team, the company is on track to exceed its expected results for the period.

According to the press release, gross merchandise volumes (GMVs) during the quarter are expected to land above the upper bound of the previous estimate ($3.7 billion) and the same goes for the firm’s forecasted 2022 GMVs, which are now expected to exceed the previous $14.78 billion mark.

Moreover, revenues for the quarter are expected to come in above $335 million while full-year top-line results should exceed the $1.31 billion mark.

Back in March when this update was published, shares went down more than 15% for two days in a row but then started to recover progressively and briefly surged above the $50 level.

However, April has been a negative month for the stock as the macroeconomic situation in the United States continues to be complicated amid elevated inflationary pressures and an expected tightening in the Federal Reserve’s monetary policy.

What could be expected from this fintech stock following these recent developments? In this article, I’ll be assessing the price action and fundamentals of Affirm stock to outline plausible scenarios for the future.

67% of all retail investor accounts lose money when trading CFDs with this provider.

Affirm Stock – Technical Analysis

From a technical perspective, the recent rejection of a move above the $50 level is not good news for Affirm and it could lead to a decline toward the stock’s all-time lows of $26 per share if negative momentum picks up in the following stock trading sessions.

The price of Affirm remains 79% below its 52-week high and 56.5% below the stock’s 200-day simple moving average as companies with relatively weak fundamentals have been severely battered by a shift in macroeconomic conditions.

Even though Affirm could benefit from higher interest rates in the United States, higher financing costs and a deterioration in the dollar’s purchasing power may deter customers from applying for additional financing.

Moreover, geopolitical tensions have prompted market participants to adopt a cautious approach when it comes to the stocks they invest in and this means that growth stocks might be less favored compared to the shares of well-established corporations.

Momentum oscillators have drifted to negative territory with the Relative Strength Index (RSI) currently standing at 41 (bearish) while the MACD just drifted to negative territory again and has already moved below the signal line.

Moving forward, if the price fails to move above the $50 mark again, chances are that the price of Affirm stock could drop to the low 30s or even near or below its all-time lows of $26 per share.

Affirm Stock – Fundamental Analysis

During the first six months of the 2022 fiscal year, Affirm saw its revenues increase by nearly 70%. However, operating losses were more than 6 times higher during that period as the firm ramped up its provisions for credit losses and certain operating expenditures significantly.

During this first semester, Affirm booked a net loss of $466 million and shed more than $113 million in cash. However, the company reported total cash and equivalents of $2.57 billion along with $475.4 million in short-term liquid investments.

The firm’s total liabilities ended at $4.48 billion including $1.58 billion in convertible senior notes.

At its current market capitalization of $10.66 billion, the company is trading at 8 times its forecasted revenues for the 2022 fiscal year and 5.6 times its estimated revenues for 2023.

This is not necessarily a stretched multiple but investors should take into account that the current macroeconomic environment is not necessarily favorable for the company.

One important variable to keep an eye on is the rate of delinquency among the firm’s loans. By the end of the second quarter of the 2022 fiscal year, delinquent loans that are 4 to 119 days past due more than doubled.

Meanwhile, the firm also increased its provisions for loan losses by 2.5x compared to the first semester of the 2021 fiscal year and that might be an indication that Affirm expects a deterioration in the quality of its portfolio of loans.

With this in mind, investors should only enter a long position in this BNPL stock if they fully understand the impact that higher delinquencies could have on the company’s top and bottom-line performance.

Even though Affirm’s solvency is robust, the financial performance of the business could be severely hurt if the demand for these loans starts to dry up amid a recessionary cycle in the US economy.

Buy AFRM Stock at eToro with 0% Commission Now!