2024-01-23 08:31:28 ET
Summary
- Affirm shares trebled in the last 2 months of 2023 before retracing about 1/3rd of the move.
- Affirm has recently extended its relationships with both Amazon and Walmart.
- The Buy Now/Pay Later space apparently achieved an inflection in volume over the Black Friday weekend.
- Published expectations for Affirm are quite modest considering its expanded partnerships and the over all inflection of the space.
- The company margin performance improvement was substantial and there are reasons to believe it will be sustained.
Why did Affirm shares treble in 2 months; what’s up next
Affirm shares really did treble in the last two months without a whole lot of support from brokerage analysts or from commentators on SA. The shares currently are still rated as somewhat below a hold on average: out of 19 brokerage analysts who report their ratings to 1 st Call, only 5 have the shares rated as a buy while 4 rate the shares as a sell. Most recently, the analyst at Morgan Stanley downgraded the shares while the analyst at BMO initiated coverage with a Market Perform rating. Analysts have an average price target of $31.60, although there are a couple of significant outliers both positive and negative in that compilation. In my opinion, there is about as much misconception of this company as almost any equity I have seen. Some commentators have insisted that Affirm’s valuation is a bubble; others have proclaimed that its results were built on easy comparisons. I am going to try to bring some sense to a few misconceptions and suggest that the company’s business has reached an inflection point which has been unremarked by many commentators and yet needs to be better explored in terms of realistically evaluating the shares.
Besides consolidating after the significant run-up over the last two months of 2023, the shares are often viewed as a play on interest rates. There is a significant level of interest rate angst in the market at this point. As I wrote this a couple of days ago, the two year treasury yield has backed up by over 13 basis points because of the strong retail sales report. In turn, fixed income investors now are concerned that the Fed will not cut rates at their March meeting, and some investors are unnerved at the tenor of Fed speakers . From a point of view regarding Affirm's likely financial results, the strong retail sales report, and particularly the strong growth of non-store sales is a decided positive.
The correlation of Affirm’s operational performance to short term swings in rates is not very great. It is the spread, and not the absolute level of rates that is important. I have no intention of trying to forecast short term rates or forecast a Fed decision at a single meeting. Doing so is little better than a guess-maybe worse. This is an article for long term investors suggesting that they take advantage of the recent share price consolidation and buy Affirm shares. It is not an article that is trying to discuss an appropriate trading strategy for the shares based on the perturbations of rates in the next weeks or months....
Read the full article on Seeking Alpha
For further details see:
Affirm: The Recent Inflection In The Business Is Under-Appreciated