Affirm Holdings (NASDAQ:AFRM), known for its buy-now, pay-later (BNPL) services, experienced a remarkable 408% surge in its stock in 2023, outperforming the S&P 500. However, 2024 has started with a downturn, witnessing an 11% decline, prompting investors to assess whether it’s an opportune time to buy the dip.

Volatility and Performance

Affirm’s stock exhibits notable volatility, with a 90% decline in the year preceding its 2023 rally. Despite last year’s surge, it remains below its all-time high set in November 2021. The rally was fueled by macroeconomic improvements and impressive financial performance, including achieving an adjusted operating profit in fiscal Q1 2024 without compromising credit quality.

Analyst Sentiment

Wall Street analysts currently hold a predominantly bearish outlook on Affirm, with a consensus rating of “Hold.” A Street-high target price of $65, set by Mizuho analyst Dan Dolev, is 46.5% above current prices. The mean target price of $27.11, representing a 38% downside, reflects the overall bearish sentiment.

Long-Term Bullish Case

Despite near-term skepticism, Dolev sees a bullish long-term outlook for Affirm. He anticipates the Gross Merchandise Volume (GMV) to reach $55 billion by fiscal year 2026, surpassing the company’s $50 billion medium-term goal. Additionally, Dolev envisions Affirm evolving into a comprehensive financial services company beyond BNPL, citing initiatives like Affirm Card and a high-yield savings account.

Key Risks

Affirm faces challenges, including intensifying competition in the BNPL space from well-capitalized players like Apple and PayPal. The stock’s surge in 2023 was influenced by expectations of a Fed pivot to rate cuts and a soft landing for the U.S. economy. Deviations from this macroeconomic thesis could impact Affirm’s performance.

Valuation Considerations

Despite the recent decline, Affirm still trades at a next-12-month price-to-sales multiple of 6.2x, indicating relatively high valuations. Investors may weigh this factor along with potential risks before making new investments.

Conclusion

While maintaining existing Affirm holdings for the long term, the author recommends refraining from adding new shares unless valuations become more favorable. The assessment acknowledges the company’s positive long-term trajectory but emphasizes prudent consideration of risks and valuation metrics for prospective investors.

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