Experts Continually Elevate Their Evaluation of This Consumer Finance Shares. Could Now Be the Moment for Purchase?
Experts Continually Elevate Their Evaluation of This Consumer Finance Shares. Could Now Be the Moment for Purchase?
Amidst escalating credit card debt balances and heightened interest rates, the Federal Reserve's recent rate reductions provide a glimmer of hope for more economical financing costs.
Leading this charge is Affirm (AFRM -0.54%), a notable player in the buy now, pay later (BNPL) industry. In response to a volatile economic climate, Affirm has successfully expanded its partnerships and boosted its market position over the past couple of years. Additionally, its consumer credit portfolio remains stable.
The demand for BNPL solutions is surging, and decreased interest rates may fuel further interest in these financing options. Consequently, Affirm has been the recipient of numerous updates and price target hikes from financial institutions, such as:
- Upgraded to neutral with a $45 price target by Wedbush.
- Upgraded to overweight with a $52 price target by Wells Fargo.
- Upgraded to equal-weight with a $37 price target by Morgan Stanley.
- Upgraded to buy with a $68 price target by BTIG Research.
- Maintained a positive rating and raised the price target to $57 by Susquehanna.
- Maintained its buy rating and raised the price target to $56 by JPMorgan.
Analysts are bullish on Affirm for several reasons, some of which you should consider if you're thinking about adding the stock to your investment portfolio.
Affirm's strategic alliances have propelled its strong growth
Affirm's growth has been bolstered by increasing demand for BNPL and strategic collaborations with major e-commerce providers. Last year, it partnered with Amazon Pay, becoming the first BNPL provider to offer payment options through the retail giant; this partnership also encompasses Amazon's business-to-business stores.
In August, the company announced a partnership with Hotels.com, enabling guests to reserve accommodations and pay over time. This expansion builds upon Affirm's commitment to travel providers, including Expedia and its subsidiary, Vrbo. Its payment solution was also recently incorporated into Apple Pay, giving customers access to its flexible financing plans through their iPhone or iPad.
Its gross merchandise volume (GMV) increased 35% year over year to $7.6 billion. Its revenue grew 41% year over year to $698 million. Although its operating expenses also rose, not at the same pace as its revenue; its $100 million loss in the quarter represented improvement from the $171 million loss in the previous year's quarter.
According to the company's shareholder letter, the U.S. BNPL GMV as a percentage of U.S. e-commerce was approximately 7.4%, up from 6.3% a year ago. Affirm estimates that it commands around 34% of the BNPL market, which has been bolstered by its strategic collaborations.
What's next for Affirm?
Some investors have expressed concerns about Affirm's creditworthiness. However, its performance in this regard has been impressive. In its first quarter (ended Sept. 30), its 30+ day delinquency rate rose slightly to 2.8% from 2.4% in the previous quarter. Nevertheless, these metrics have stayed relatively stable, and Affirm attributes this to the shorter repayment tenure of its loans.
Affirm's credit stability persists, and its sales growth has been impressive. Lower interest rates provided by the Federal Reserve could offer additional benefits. The central bank has indicated confidence that inflation is nearing its target and has reduced the federal funds rate, its benchmark interest rate, by 0.75% since its September meeting.
Decreased funding costs could be advantageous for consumer lenders in general. For Affirm, lower funding costs may incentivize more borrowers to utilize its services. This, combined with its increased visibility as a payment option on Apple and popular e-commerce platforms, could help boost demand for its installment loans.
Is Affirm a buy today?
Despite its consistent growth, Affirm continues to operate at a loss. However, analysts believe its growth and the tailwinds from lower rates could help steer it towards profitability. According to Wells Fargo analysts, "Affirm has demonstrated its right to win incremental e-commerce checkout share for years to come," and profitability is "on the horizon."
Affirm's credit quality has remained resilient, and its revenue has experienced steady growth due to its collaborations and the popularity of BNPL options. With the stock valued at 5.7 times sales and 4.7 times the projected sales for next year, I believe Affirm offers a compelling opportunity for investors willing to tolerate a modest degree of risk.
The decrease in interest rates by the Federal Reserve could stimulate more interest in BNPL financing options, potentially benefiting companies like Affirm. Following the Fed's rate reductions, Wells Fargo upgraded Affirm to an overweight position with a $52 price target.
As investors consider adding Affirm to their investment portfolios, it's worth noting that the company's growth has been boosted by strategic alliances with major e-commerce providers, such as Amazon, Hotels.com, and Expedia. This expanded partnership network has also led to Affirm's payment solution being integrated into Apple Pay, providing additional access points for its installment loan services.