Affirm (AFRM), a leader in the buy-now, pay-later (BNPL) space, has experienced another surge in stock price, jumping 10.2% on Tuesday. This uptick came as part of a broader rise in BNPL and fintech stocks, benefiting from a weaker-than-expected jobs report. 

This report could influence the Federal Reserve to continue lowering interest rates, a development that would likely stimulate borrowing, a positive for companies like Affirm that rely on credit-based business models. Financial analysts from SkylineSFO highlight Affirm’s recent performance and discuss whether the stock is a buy for long-term investors.

What’s Behind Affirm’s Pop?

Affirm’s stock gains on Tuesday came in two distinct stages. Initially, the stock surged right after the market opened, likely in response to the weak jobs report that signaled potential interest rate cuts. Later in the day, the stock jumped again, following comments from Affirm’s CFO in a fireside chat.

Other BNPL and fintech stocks, such as Sezzle and Lemonade, also experienced gains on Tuesday, partly driven by share buyback announcements and upgrades, respectively. Investors are likely seeing the jobs report as a boon for the BNPL sector. Lower interest rates generally encourage more borrowing, while a challenging job market could push consumers toward BNPL options to help manage finances.

During the fireside chat, CFO Rob O’Hare reassured investors that Affirm’s business was performing in line with expectations. He remained optimistic about the company’s ability to gain market share, even amid tough comparisons in the e-commerce market. 

O’Hare also discussed the Amazon renewal, calling it a “win-win” for both companies. He emphasized that terms would remain largely unchanged, with the partnership driving new customers for both Affirm and Amazon.

In addition to the positive business update, O’Hare dismissed third-party data that had led to a 7% decline in Affirm’s stock the previous week. He argued that the data had significant tracking errors, reinforcing his belief that quarter-to-date trends were strong.

In response to this upbeat update, Evercore ISI issued a bullish note on Affirm, reaffirming its outperform rating and setting a price target of $95 for the stock.

Is Affirm a Buy?

While Affirm’s stock has shown strong growth and benefited from market trends, investors need to be cautious about the inherent risks in the BNPL sector. Affirm, like other companies in this space, faces credit risks, especially if the labor market remains weak. There are also concerns about rising delinquencies in auto loans, which could indicate wider credit risk issues.

Despite these concerns, Affirm is showing strong growth. The company reported 34% year-over-year revenue growth and achieved a GAAP operating margin of 7% in its most recent quarter. These results indicate that Affirm is profitable and continuing to expand, even amidst a challenging macroeconomic environment.

The Amazon partnership is a particularly noteworthy development, as it solidifies Affirm’s position as an industry leader in the BNPL space. The extension of this relationship will likely help Affirm drive further customer acquisition and solidify its place in the competitive e-commerce landscape.

Credit trends remained steady during the quarter, with delinquency rates in line with historical levels. This stability is crucial for Affirm’s long-term growth, as it indicates that the company’s credit model is holding up, even in the face of economic volatility. For investors seeking growth stocks, Affirm provides an attractive opportunity, but it’s important to recognize the credit risks that come with the company’s business model.

What’s Next for Affirm?

The future of Affirm is closely tied to economic conditions and the company’s ability to maintain strong growth while managing credit risk. The weak jobs report and potential for interest rate cuts are beneficial for Affirm’s business model, as lower rates typically increase borrowing demand. However, if economic conditions worsen or credit delinquencies rise, Affirm may face challenges in maintaining profitability.

That said, Affirm’s partnership with Amazon, its steady growth in the BNPL sector, and strong market position suggest the company is well-positioned for long-term success. Investors should monitor Affirm’s ability to expand its customer base and manage credit risks as the market evolves.

For those looking to invest in Affirm, it could be an attractive opportunity while the stock remains reasonably valued, but economic trends and credit challenges should be carefully considered.

In conclusion, Affirm’s recent stock surge is driven by a combination of positive market trends, strong partnerships, and robust growth in the BNPL sector. Brokers suggest that while Affirm presents a promising growth opportunity, potential investors should be mindful of credit risks and broader economic conditions that may impact its long-term prospects. The Amazon extension and the company’s continued revenue growth make it a solid pick for those willing to accept the risks of the BNPL sector.