Wall Street was optimistic this morning after the release of the May jobs report. The Labor Department reported that the U.S. economy 559,000 jobs last month, slightly lower than the 671,000 jobs expected. However May’s jobs number is a drastic improvement from April’s disappointing 266,000 jobs addition.
Financial stocks have been in the limelight this year. The Financial Sector SPDR ETF (XLF) has outperformed the broader market, with a total return of more than 32% year-to-date, compared to the SPDR S&P 500 ETF Trust (SPY) which is only up 13.5% in the same period.
Our trade alert for today highlights what some are calling the next financial stock to shake up the industry.
Affirm Holdings (AFRM) is an emerging fintech company that is best known for their buy now, pay later (BNPL) solution for retailers and shoppers. As one of the top three players globally in the BNPL space, they believe they can reinvent the payment experience. The stock went into free fall after peaking in February at $139, partly due to investor sentiment. But there are also some fundamental concerns that could be deterring investors.
From its third-quarter results, revenue came in 67% higher and gross merchandise came in 83% higher. While these numbers are impressive, the company also increased its net loss from $85 million in fiscal Q3 2020 to $247 million in fiscal Q3 2021.
The core of Affirm’s business is loaning money to customers to make purchases, but the depth of credit checks involved is probably much less than what traditional banks do for credit card applications, which means that Affirm’s default risk is likely higher. It could be just a matter of time before the framework of BNPL practices improve.
PayPal (PYPL) exists because of eBay, similarly, Affirm is powering Shopify (SHOP), which has 1M+ global merchants (more than 50% are in the US). Moreover, the company began scaling up its onboarding of merchants related to its exclusive partnership with SHOP in April, bringing the total SHOP merchants on AFRM’s platform to more than 10,000, and that’s likely just the beginning.
The company also has exclusive partnerships with 6,500 stores including Walmart (WMT), Target (TGT), Peloton (PTON) and several other high ticket retail merchants. Plus, AFRM is the only BNPL player that charges customers zero fee.
On May 3, Affirm completed the acquisition of Returnly Technologies, a leader in online return experiences and post-purchase payments. Returnly serves more than 1,800 merchants and has been used by 8 million shoppers. The deal aims to accelerate growth by helping merchants reach new customers and drive conversions.
If you believe that BNPL will become a regular fixture in fintech like Max Levchin, PayPal co-founder and creator of Affirm, then you may be considering a position in AFRM, which is possibly the best pure play on BNPL available.
Of 9 analysts covering the stock, 5 recommend to Buy AFRM and 4 call it a Hold. There are no Sell ratings. An average price target of $76.88 points towards a 15.5% increase from its current price, which is around $63.
Where to invest $1,000 right now...
Before you consider buying Affirm, you'll want to see this.
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But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
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