Opinions
Hap (Robert) Sneddon FCSI
Affirm Holdings
AFRM-Q
BUY ON WEAKNESS
Oct 09, 2024
$42.890
Stock price when the opinion was issued
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BUY
It's been a rocket since it won the contract to be the sole operator of buy-now, pay-later for Amazon. The CEO believes the credit card companies will be roadkill. AFRM won't offer hidden charges and extort consumers with high interest rates who can't pay their bills in time, says the CEO. AFRM withstand the pandemic downturn last year. This company has a mission. It's winning big business.
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DON'T BUY
Buy now, pay later stocks: Affirm, Upstart, Block and Paypal Upstart is down 92% from its high, Affirm 89%, Block 78% and PayPal 76%. Some of this is due to these stocks being massively massively overpriced to begin with. At peak, Affirm was trading at 30x sales (not earnings), and it won't be profitable before 2026. Block and PayPal are profitable, but were trading at sky-high multiples last year (170x PE and 65x respectively). The market hates the buy-now, pay-later stocks because they don't make money (though are well-run). He liked Upstart early on; it wasn't a buy-not,pay-later story, but helped facilitate loans using technology. But Upstart took on far more credit risk than assumed, which upset him. The business models of these stocks were far better when interest rates were low. Also, more competitors have rushed in now. The lesson: don't be caught up in euphoria. Earnings, valuations and interest rates matter.
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BUY
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research
EPS of $0.2 beat estimates of $0.12 and sales of $876.42M beat estimates of $834.35M. Sales grew 33% year-over-year, and guidance was above analyst estimates. Management noted strong consumer demand for its buy now, pay later services and increasing adoption of 0% APR offerings by merchants helped to lift results. Its merchant network grew 24%, and overall management expects continued momentum. We think this was a really strong quarter, and while it trades at a high valuation of 42X forward earnings, we think its momentum can continue here.
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Fresh buy signal today that could go away tomorrow (if there's a bit of weakness), but it's trying to catch hold. Longer term looks really good. Looking at the big swings of volatility, could come back to the $37 range and it would still be good long term.