Stocks ticked higher in early trading, adding to the gains of the past two days as investors seemed eager to move back into names that have been dragged down in the most recent slide. Anyone looking for gems among the wreckage might be drawn to hyper-growth financial tech space where prices have been slashed. But with the Fed taking the most hawkish stance seen in five years, the job has become increasingly difficult for fintech investors.
Today we’re highlighting a compelling buying opportunity in the rapidly expanding buy now pay later space. This is a promising name has successful early-stage partnerships that are quickly developing and seem likely to reward. What’s more, it’s currently offering an entry that could be too tempting to ignore.
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Buy now, pay later (BNPL) is a twist on installment-based consumer lending that has been fueled by upended consumer credit markets. Firms in the space make money by charging merchants a fee to offer small point-of-sale loans that shoppers repay in interest-free installments, bypassing credit checks, empowering the customer with greater spending ability, which highly benefits the merchant.
A recent study said BNPL transactions will increase more than sixfold by 2025 to $685 billion in sales — at a compound annual growth rate of 13%. Like all tech-centric industries, BNPL is evolving quickly. Competition in the space means that not all firms currently riding the BNPL wave will make it to shore.
One of the most promising companies that offer exposure to the flourishing BNPL space is Affirm (AFRM), and it’s currently trading at a price so low it deserves a second look.
Affirm made its debut onto public markets last year in one of the most talked-about IPO’s in history. The company priced its shares above the target range at $49 a piece. The stock soared 95% to close its first day of trading at around $97 and continued to climb as investors piled into the fintech name despite a lofty valuation. The stock hit its high of $168 in early November and has since plummeted 60%.
There is no question that AFRM had become overvalued. Its price-to-sales ratio had more than doubled from 20 at the end of June to nearly 45 at the end of October. As a testament to the stock’s perceived potential, investors continued to jump on board, willing to pay top dollar for the name. The good news for patient onlookers is that the P/S has pulled back to a historical low of 16.
Investors will be looking forward to updates on Affirm’s holiday performance at Amazon.com’s (AMZN) checkout during the Q4 earnings call slated for February 10th. AMZN implemented AFRM’s BNPL offering just before the holiday season. A recent Mizuho survey shows a promising start to the endeavor, suggesting that a significant portion of Affirm’s users may have already tried checking out with Affirm on Amazon, potentially leading to “notable upside” to the company’s volumes. Moreover, the survey highlights a “strongly positive experience” on Amazon, with a substantial majority of respondents expressing willingness to check out on Amazon using Affirm again.
The current consensus among analysts is to Buy AFRM. There are 8 Buy ratings, 6 Hold ratings, and no Sell ratings for the stock. A median 12-month price target of $105 represents a 56% increase from the last price.
Where to invest $1,000 right now...
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