After Rallying 56% in the Past 3 Months, is Affirm (AFRM) Still a Buy?

Retail sales saw an unexpected jump in the month of August, a welcomed surprise for Affirm Holdings, Inc. (AFRM). AFRM is a financial technology (fintech) company that provides a state-of-the-art “buy now, pay later” lending platform for e-commerce transactions.

Shares of Affirm Holdings have rallied 56% over the past three months, outperforming its benchmark, the Global X FinTech Thematic ETF (FINX), as well as the S&P 500, which have gained 4% and 3.86%, respectively. In addition, in AFRM’s Q4 earnings report, released on September 9th, the company forecasted strong Q1 revenue guidance and FY2022 outlook. As a result the stock rallied significantly.

In this article we will take a closer look at the company’s quantitative and qualitative metrics to determine whether it still has room to run after its recent rally. 

Recent Developments

On August 27th, Affirm Holdings announced that it has partnered up with Amazon to provide its “Buy Now, Pay Later” option for their customers. This feature is currently being tested with select customers. 

Under the terms of the collaboration, Amazon (AMZN) clients could split the total cost of purchase of an amount greater than $50 into monthly payments utilizing AFRM. If approved, the company may see a solid improvement of its operating metrics such as revenue and Gross Merchandise Volume (“GMV”). Management plans to provide additional information about the financial impact of this deal in subsequent quarters. 

Recent Quarterly Performance 

AFRM’s total revenue for its fiscal fourth quarter, ended June 30th, 2021, increased 70.7% year-over-year to $261.78 million, beating analysts’ estimates by $37.39 million. The revenue growth was driven by growth in network revenue as well as interest income. However, the company reported GAAP EPS of ($0.48), missing Wall Street consensus by $0.15.

The company’s GMV increased 106% to $2.5 billion as of June 30th, 2021. Affirm calculates GMV as a total dollar value of all transactions during a specified period, excluding refunds. Besides, the company’s active customers increased 98% to 7.1 million compared to the 4Q20 figure. The number of transactions per active customer also grew by 9.5% to 2.3.

Finally, one of the most important is that the company issued a strong FY2022 outlook. AFRM sees its first-quarter revenue of $240 – $250 million, which at the midpoint locates near average analysts’ projections of $246.67 million. Also, the company plans to receive revenues of $1.16 – $1.19 billion in FY2022, implying a 34% year-over-year growth at the midpoint. Moreover, the company has seen upward EPS revisions after posting FY2022 guidance, which could be considered a bullish sign. 

Options Traders Betting On A Rise

During the September 17th trading session, there was a purchase of about 4,772 $120.00 October 15th call options for $8.20 per contract. Additionally, this transaction brings the total number of open contracts to 8,684 (source: barchart.com). This means that the bet has a total dollar value of about $3.9 million. I would characterize this transaction as a huge bullish bet. At closing Friday’s trading session, the stock was priced at $116.28. This figure suggests that if the stock is able to reach its strike price, it would have an upside potential of about 10.3% from its current levels. If a buyer of the options is planning to hold the options until they expire, they’d need a price of $128.20 to earn a profit, if we are not including costs and broker commissions.

The Bottom Line 

I believe that AFRM is a stock investors should consider adding to their portfolios.  It’s a promising fintech company that has improved its key operational metrics in 4Q2021 and issued strong FY2022 guidance. In addition, the recent deal with Amazon could also be a significant bullish catalyst for the share price in coming quarters. Finally, options traders appear to be betting that AFRM stock will rise in the coming weeks.