Affirm (NASDAQ:AFRM) witnessed a remarkable 11% surge in its shares following the Federal Reserve’s March dot plot, which reiterated expectations for three rate cuts in 2024. The resurgence in Affirm’s stock comes amid a challenging year for rate-sensitive assets, as concerns over potential Fed hawkishness linger due to persistent inflation above the central bank’s 2% target.
Yesterday’s broader U.S. stock rally was spurred by Federal Reserve Chair Jerome Powell’s unexpectedly dovish tone, providing relief to investors. Despite the recent uptick, AFRM stock remains down 23.1% for the year, following a stellar 2023 performance where it soared by 408%, surpassing the S&P 500’s modest 24% returns.
Volatility remains a defining characteristic of Affirm stock, reflected in its high beta of 3.6. While 2023 saw a remarkable rally, it followed a sharp 90% decline in the previous year. Despite its notable performance last year, AFRM still trails its November 2021 all-time high of $168.52 and its IPO price of $49.
However, the landscape for growth-oriented companies has shifted since the Fed’s 2022 rate hikes. Valuations that once prevailed between 2020 and 2021 no longer serve as benchmarks, as evidenced by Reddit’s forthcoming IPO at a considerable discount to its 2021 private market valuation.
Looking ahead, as the Fed appears committed to rate cuts, is the worst behind Affirm? Let’s delve into the prospects.
Optimism for AFRM Stock
There are indications that the worst may be over for Affirm stock. The economy seems to be edging toward a “goldilocks” scenario, where growth slows without signaling a recession. Moreover, an imminent rate cut from the Fed amid economic deceleration bodes well for Affirm and similar entities.
Several factors support a bullish outlook for AFRM stock
Expanding BNPL Market: The buy now, pay later (BNPL) market is projected for rapid growth, with analysts anticipating a 22.8% CAGR between 2023 and 2029, reaching $86.85 billion. Notable entrants like Block (SQ) and Apple (AAPL) highlight the sector’s potential.
Strategic Partnerships: Affirm has forged partnerships with industry giants like Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), and Shopify (NYSE:SHOP), positioning itself to capitalize on increasing BNPL adoption among consumers.
Strong Business Management: Affirm’s success isn’t solely reliant on industry growth. Management initiatives, such as the Affirm card launch, indicate proactive strategies driving growth. Additionally, revenue transaction costs (RLTC) surged by 68% in fiscal Q2 2024, outpacing revenue growth.
Managed Delinquencies: Despite economic headwinds, Affirm has effectively managed delinquencies, maintaining stability in its fiscal Q2 2024 performance.
Reasonable Valuations: Affirm’s valuation metrics have moderated, trading at a next 12-month price-to-sales multiple of 4.8x, down from over 7x in late 2023.
Market Outlook and Analyst Sentiment
While Wall Street analysts hold a predominantly “Hold” stance on AFRM stock, with a consensus rating reflecting caution, there’s a notable price target variance. Analysts project a mean target price above current levels, with Mizuho’s Dan Dolev forecasting a Street-high target of $65, representing a 72% increase.
In conclusion, despite recent setbacks, Affirm’s strong market position and strategic maneuvers suggest a potential for upward momentum, particularly amidst growing investor interest in the BNPL sector.
Featured Image: Megapixl
Author Faith Yakubu 
