Does Fintech Darling Holdings still confirm a place in your portfolio?
Fintech stocks received significant investor attention during the height of the COVID-19 pandemic. Affirm Holdings, Inc. (AFRM) was one of the pros in the industry, as it experienced tremendous revenue growth and record gross margins.
AFRM provides digital and mobile commerce platforms by enabling a technology-driven payment network through partnerships with banks. A consumer can use the company’s platform by choosing the repayment option while the loans are financed and issued by the banking partner. The platform has three elements: a payment solution for sales, commerce solutions and consumer-focused applications.
In the last reported quarter, AFRM beat consensus revenue and earnings estimates. The company’s loss per share came in 50.4% lower than the consensus loss per share of $0.39. Revenue was 3.1% higher than Wall Street’s estimate of $344.01 million.
However, AFRM’s stock has fallen 70.8% in price so far this year and 56.7% over the past year to close last trade at $29.32. It is currently trading 83.4% below its 52-week high of $176.65, which it reached on November 8, 2022.
Here’s what could affect the performance of AFRM in the coming months:
Mixed economy
AFRM’s total operating expenses increased 32.1% year-over-year to $581.31 million in the third quarter ended March 31, 2022. The company’s adjusted operating income fell 18.8% to $4 million. Net loss narrowed 80.9% year-over-year to $54.67 million. The loss per share also narrowed by 84.5% year-over-year to $0.19.
Mixed analyst estimates
Analysts expect AFRM’s EPS for fiscal 2022 and 2023 to remain negative. Revenue for fiscal 2022 and 2023 is expected to increase 53.8% and 42.6% year-over-year to $1.34 billion and $1.91 billion, respectively. It failed to beat Street EPS estimates in three of the trailing four quarters.
Extended valuation
In terms of forward EV/S, AFRM’s 7.68x is 169% higher than the 2.86x industry average. Likewise, its 6.27x forward P/S is 121% higher than the 2.84x industry average. And the stock’s 3.25x trailing 12-month P/B is 3.7% higher than the 3.14x industry average.
Lower profitability than industry
AFRM’s trailing 12-month net income margin is negative compared to the industry average of 4.25%. Likewise, the trailing 12-month leveraged FCF margin is negative compared to the industry average of 8.03%. Furthermore, the share’s 0.21% trailing 12-month asset turnover ratio is 66.9% lower than the industry average of 0.64%.
POWR ratings reflect a bleak outlook
AFRM has an overall F-rating, which corresponds to strong sales this spring POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted optimally.
Our proprietary rating system also evaluates each stock based on eight different categories. AFRM has a D grade for value, in sync with its extended value rating.
It has a D grade for quality, consistent with its lower profitability than the industry.
AFRM is ranked 79 out of 82 shares in D-rated Technology – Services industry. click here to access AFRM’s growth, momentum, stability and sentiment ratings.
The bottom line
Fintech companies have grown significantly in the last couple of years due to their wide applicability in payments, insurance, wealth management, lending, etc. The industry is also poised to grow significantly in the long term.
However, AFRM does not appear to be well-positioned to capitalize on industry tailwinds, given its weak financials, stretched valuation and lower-than-industry profitability. Therefore, we think it is best to avoid now.
How Affirm Holdings, Inc. (AFRM) Works Stack up against their peers?
AFRM has an overall POWR rating of F, which equates to a strong sell rating. Therefore, you may want to consider investing in other technology-services stocks rated A (Strong Buy) or B (Buy), such as Celestica Inc. (CLS), Jabil Inc. (JBL), and ScanSource, Inc. (SCSC).
AFRM shares were trading at $30.70 per share Wednesday morning, up $1.38 (+4.71%). So far this year, AFRM has fallen -69.47%, compared to a rise of -12.08% in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Since he was in primary school, Dipanjan was interested in the stock market. This led to him taking a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing new trends in the financial markets. More…
