Affirm Holdings (NASDAQ: AFRM), a financial technology company specializing in buy now, pay later and point-of-sale payment solutions, experienced a 7% drop in extended trading following a bleak outlook for its fiscal fourth quarter (ending in June).
In the third quarter, Affirm reported revenue of $783 million and earnings per share of one cent. This represents a significant 36% year-over-year increase in sales, driven by a corresponding 36% rise in gross merchandise volume (GMV) to $8.6 billion. The company also achieved an adjusted operating margin of 22% and a net income of $2.8 million, a notable improvement from the $133.9 million loss reported in the same period last year. Separately, see – Google’s $1 Trillion Problem: Stock To Crash 40%?
However, Affirm’s guidance for the fourth quarter fell short of market expectations. The company projects revenue of $830 million at the midpoint of its guidance, which is below the consensus estimate of $841 million. This weaker-than-anticipated outlook appears to have negatively impacted investor sentiment. In fact, AFRM stock has declined by nearly 40% from its February highs of over $80, highlighting the stock’s inherent volatility. If you are seeking upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
The recent quarterly results raise the key question of whether AFRM stock is currently a favorable investment. At its current price of around $50 (after market hours), Affirm trades at 5.3 times its trailing revenues, lower than its two-year average price-to-sales (P/S) ratio of 8.6x. While Affirm’s recent performance coupled with a cautious outlook suggests potential near-term pressure on the stock, we believe that its current valuation indicates that many of the negative factors are already reflected in the price. It’s worth noting that the average analyst price target of $68 suggests a potential upside of over 35% from the current levels.
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