Affirm Stock Price Rises 35% – Time to Buy AFRM Stock?

Affirm (AFRM) stock was trading 35% higher in premarket price action today after the company announced a deal with e-commerce giant Amazon. What’s the forecast for AFRM stock and is it time to buy this fintech name?

Affirm is a BNPL (buy-now-pay-later) company. The industry has been attracting a lot of interest from financial as well as the Big Tech companies. On Friday, AFRM announced a partnership with Amazon under which buyers on the platform would be able to pay using Affirm’s flexible payment options. To begin with, the optionality would be available for a few Amazon customers only but eventually Amazon plans to offer the option to a broad range of customers.

Why is Affirm stock price going up?

The partnership with the largest e-commerce player in the US is a shot in the arm for Affirm. It is also a testimony to the growing popularity of BNPL. AFRM sounded upbeat on the prospects on the partnership and Eric Morse, Senior Vice President of Sales at Affirm said “By partnering with Amazon we’re bringing the transparency, predictability and affordability that Affirm provides today to the millions of people who shop on Amazon.com in the U.S.,” He added, “Offering Affirm’s alternative to credit cards also delivers more of the payment choice and flexibility consumers on Amazon want.”

To put things in perspective, Amazon’s North America e-commerce segment is its largest and contributed $67.5 billion to its second-quarter revenues. Affirm posted revenues of only about $230 million in the March quarter.

AFRM has been gradually expanding its partnerships. In June, the company expanded its partnership with Shopify to bring its Shop Pay Installments to all eligible merchants in the US.

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BNPL market is getting hot

While Affirm stock was whipsawed since its listing earlier this year, the BNPL market is attracting a lot of attention. Incumbents like AFRM tumbled on news that Apple is planning to get into the BNPL market in collaboration with Goldman Sachs. The two already have a credit card together. Meanwhile, while some saw Apple’s entry into the BNPL as a threat to Affirm, many others saw it as an affirmation of the potential for the BNPL market.

Earlier this month Square announced that it will acquire Australian BNPL (buy now pay later) company Afterpay for $29 billion in an all-stock transaction. It said that “the acquisition aims to enable the companies to better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes.” The deal was at a premium to Afterpay stock price. The news triggered a buying spree in BNPL names like Affirm as the market speculated that more names in the sector could be acquisition targets for larger companies.

Affirm stock price forecast

Meanwhile, Wall Street analysts have split ratings on Affirm stock. Of the 11 analysts polled by CNN Business, six rate AFRM stock as a buy while four rates it as a hold. Only one analyst has a sell or equivalent rating on the stock.

AFRM has a median target price of $73, which implies an upside of 7.6% over current prices. Its lowest target price is $55 which is a discount of over 18% while the highest target price of $87 is a premium of 28.2% over current prices.

Several analysts had lowered the stock’s target price after news of Apple’s entry into the BNPL market. In June, Mizuho had lowered its target price from $90 to $76. Earlier this month, DA Davidson had downgraded AFRM stock from a buy to neutral and lowered the target price from $90 to $76. However, last week, BofA analysts increased the target price from $71 to $82 expecting the company’s upcoming earnings release to improve sentiments.

Bank of America expects an earnings beat

“We see modest upside potential to our estimates for key metrics in F4Q, including gross merchandise volume (GMV) of $2,288M and revenues of $224.3M, which are 2.8%/0.6% above the Street at $2,225M / $223M, and reflect y/y growth of 90% and 46%, respectively,” said BofA Securities analyst Jason Kupferberg in his note. He added, “We think the recently announced acquisition of Afterpay by Square (SQ) and AFRM’s win with Apple in Canada have helped improve sentiment, and see the F4Q print as the next potential catalyst.”

Meanwhile, after the partnership with Amazon, we could see more Wall Street analysts upgrade the stock as the deal has the potential to increase its revenues significantly.

Affirm stock price valuation

Affirm’s valuation multiples have come down sharply amid the crash in its stock price. The stock trades at an NTM (next-12 months) EV (enterprise value)-to-sales multiples of 17.3x which is just about a third of what the multiple peaked. The multiple has averaged 20.6x since AFRM was listed earlier this year.

While the multiples might seem high in absolute terms, they are reflective of the optimism towards fintech names, especially in the BNPL industry. Looking at the charts, Affirm stock trades above the 50-day SMA (simple moving average) while its 14-day RSI (relative strength index) is 54.5, a neutral indicator.

Overall, AFRM looks like a good fintech name to own given the strong growth outlook. The partnership with Amazon looks a step in the right direction and more such deals can be expected in the future as the BNPL market continues to gain traction.

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