Should You Buy Affirmative Stocks While They’re Below $49?

affirm (AFRM -0.11%) was a hot fintech stock three years ago. The Buy Now Pay Later ( BNPL ) services provider went public at $49 per share on January 13, 2021, opened at $90.90, and rose to a record high of $168.52 on November 4, 2021.

But today, Affirm shares are trading around $45, retreating as new macro and competitive challenges have halted its growth. Rising rates also compressed valuations and cast a harsh light on high debt and lingering losses. So should contrarian investors buy Affirm stock while it’s still trading below its initial public offering (IPO) price?

Image source: Getty Images.

How fast is Affirm growing?

Affirm’s BNPL platform approves “microloans,” which allow merchants and consumers to split one-time purchases into smaller installments. This is an attractive payment option for younger and lower-income consumers who cannot be approved for credit cards. It also does not charge any compound interest or hidden fees for these payments.

For merchants, Affirm’s transaction fees can cost less than the 1.5%-3.5% swipe fees charged by most credit card networks. That’s why big retailers like it Amazon, Walmartand Aim all offer Affirm as an alternative to traditional card payments.

The number of active merchants, active customers, transactions per active customer and gross merchandise volume (GMV) at the Firm increased in fiscal year 2021 (ended June 2021) and fiscal year 2022 (ended June 2022). Pandemic-driven online shopping, stimulus checks and youth-oriented social media campaigns have driven much of this growth.

Affirm also gained thousands of new merchants in those two years after integrating its tools into the Shopifyits e-commerce services. But in fiscal 2023, Affirm’s growth cooled as inflation dampened consumer spending.

Data source: Affirma.

This deceleration along with tougher competition from other BNPL platforms such as Blockto Afterpay and PayPalPay in 4, caused Affirm’s stock to drop to an all-time low of $8.91 on December 27, 2022. But if you had bought the stock that fell on that fateful day, you would have made more. 400% today.

Affirm shares soared as GMV and revenue growth accelerated again in fiscal 2024. That acceleration was driven by its new business deals, growing adoption of its Affirm card (which combines a debit with BNPL options) and a warmer macro environment for travel bookings and general merchandise purchases.

In fiscal 2025, Affirm expects its GMV to grow by at least 26%. Its business is maturing, but analysts expect its revenue to grow 29% and continue to grow at a compound annual growth rate (CAGR) of 24% from fiscal 2024 to fiscal 2027. With an enterprise value At $18.6 billion, Affirm still looks reasonably valued. compared to this perspective, 6 times this year’s sales. Looking back, it traded at a whopping 37 times its forward sales when it hit an all-time high in 2021.

But is Affirm’s business sustainable?

The bears will tell you that Affirm is unprofitable and basically facilitates small subprime loans that could easily collapse in a recession. But in fiscal 2024, the company cut its losses significantly as it laid off nearly a fifth of its workforce, streamlined expenses and replaced some of its employees with artificial intelligence (AI) chatbots.

Data source: Affirma.

Affirm expects operating margin to turn positive by the fourth quarter of fiscal 2025 and remain in the black in fiscal 2026 and beyond. Analysts expect it to narrow its net loss to $176 million in fiscal 2025 and turn profitable in fiscal 2026.

In terms of its loan quality, only 2.4% of monthly installment loans were more than 30 days delinquent at the end of fiscal year 2024. This ratio dropped to 1.5% for more than 60 days delinquency and only 0 .6% for those over 90 days. These low delinquency rates dispel the notion that Affirm will be overwhelmed by delinquent loans.

Should you buy Affirm while it’s still below the IPO price?

The firm endured some headwinds in fiscal 2023, but its recovery and acceleration in fiscal 2024 indicates that its business is sustainable. With interest rates falling and the macro environment heating up again, Affirm’s growth rates should stabilize as it expands its businesses.

Affirm stock may remain volatile, but I think investors who buy it at a discount to the IPO price could be well rewarded going forward. That could be why its members bought nearly three times as many shares as they sold over the past six months.