Affirm Holdings (AFRM) Stock: A Good Buy After September Earnings

Affirm Holdings, Inc. (NASDAQ: AFRM) has gained attention as a prominent player in the Buy Now, Pay Later (BNPL) sector. As financial technology reshapes the consumer lending space, Affirm’s role in delivering interest-free installment payment options to shoppers makes it a potential growth stock. This post provides an in-depth look at Affirm’s financials, stock performance, and growth potential, as well as an analysis of the risks, aiming to help investors assess whether AFRM is a worthy addition to their portfolios.

1. Overview of Affirm Holdings

Founded in 2012 by Max Levchin, Affirm operates in the BNPL industry, allowing consumers to make purchases and pay for them in installments over time. The company offers flexible financing options through its platform, which spans partnerships with major retailers and direct integration with e-commerce sites. Affirm generates revenue through merchant fees and interest on specific transactions, positioning itself as a user-friendly, digital-first alternative to traditional credit cards. Its growth aligns with the larger trend in digital payments, as consumers increasingly look for transparent, accessible financing options.

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2. Affirm Holdings Financial Performance

Affirm's recent financial results for Q1 2025, covering the quarter ending in September 2024, indicate substantial growth and operational improvements. Quarterly revenue reached $698.48 million, a 40.67% increase compared to $496.55 million in Q1 2024. This revenue growth reflects Affirm’s expanded merchant partnerships and heightened consumer demand for Buy Now, Pay Later (BNPL) options.

EPS for the quarter improved significantly, with Q1 2025 reporting -$0.31 per share, a 45.61% reduction from -$0.57 in Q1 2024. On a trailing twelve-month (TTM) basis, revenue rose to $2.525 billion, marking a 46.55% increase from the $1.723 billion reported for the same period last year. Affirm’s TTM EPS also improved from -$3.03 in Q1 2024 to -$1.42 in Q1 2025, a 44.88% decrease in losses, highlighting Affirm’s ongoing focus on cost management and profitability.

Free cash flow per share also showed notable progress, moving from -$0.22 to $1.21 on a TTM basis. This positive shift in cash flow indicates Affirm’s enhanced ability to generate cash internally, supporting its growth trajectory while potentially reducing dependence on external funding sources. These improvements reflect Affirm’s strategic focus on achieving sustainable long-term growth.

3. AFRM Stock Price Performance and Valuation

Affirm’s stock price has seen robust momentum over the past year, rising approximately 110%, outperforming many peers in the fintech space. This upward trajectory has been supported by increased consumer demand for BNPL services and Affirm’s solid brand positioning.

When it comes to valuation, at $46/share Affirm currently trades at a Price-to-Sales (P/S) ratio of approximately 5.7, which is higher than some traditional financial services companies but remains relatively attractive for a high-growth fintech stock. While Affirm does not yet have a P/E ratio due to its negative earnings, it has a positive cash flow, with a P/FCF valuation of 38.37, which is favorable given its growth, analysts view the P/S ratio as reasonable given Affirm's strong revenue trajectory and margin improvement. Given the forward projections for revenue and eventual EPS growth, Affirm’s valuation can be considered favorable for long-term growth investors.

4. Affirm Holdings Growth Potential

Affirm's growth potential is grounded in both industry trends and its strategic expansion initiatives. As the BNPL market continues to grow with projections estimating a compound annual growth rate (CAGR) of nearly 22% through 2030 Affirm is well-positioned to capture an increasing share. Key factors driving this growth include:

• Market Expansion: Affirm’s recent entry into the UK market marks its first expansion outside North America, which could unlock new revenue streams and further diversify its business.
• Strategic Partnerships: Affirm has partnered with prominent retailers like Amazon and Walmart, enhancing its brand visibility and accessibility. These partnerships also reinforce Affirm’s ability to scale through high-traffic, consumer-oriented platforms.
• Product Innovation: Affirm’s flexible payment options cater to diverse customer segments, from interest-free loans to installment plans with low APRs, helping it capture users who seek alternative financing. The company is also exploring enterprise-scale solutions to reach larger commercial partners.
• User Growth: Affirm’s active customer base has seen steady growth, bolstered by its seamless integration with online shopping experiences, reflecting consumer trust and demand for transparent financing options.

Given these strengths, Affirm is positioned to continue its revenue growth trajectory, with analyst projections expecting 33% revenue growth for FY2025. The company’s initiatives reflect its ability to capitalize on the growing BNPL demand globally, an indicator of continued scalability.

5. Risk Factors

Despite its promising growth potential, investors should consider certain risks before investing in Affirm. These include:

• Competitive Pressure: The BNPL space is highly competitive, with major players like Klarna, Afterpay, and even traditional financial institutions moving into the sector. Increased competition could impact Affirm’s market share and put pressure on profit margins.
• Regulatory Risk: BNPL services face potential regulatory scrutiny, especially as financial regulators like the Consumer Financial Protection Bureau (CFPB) assess stricter regulations for companies offering consumer credit. Affirm may face additional compliance costs or operational restrictions as regulations evolve.
• Profitability Challenges: While Affirm has made strides in reducing its losses, the company has not yet reached profitability. Investors should be prepared for continued short-term volatility as Affirm navigates growth expenses and aims to improve its margin.

Nevertheless, Affirm’s proactive steps toward expense management and international expansion reflect a company that is both adapting and preparing for long-term growth, making the risks more manageable for investors with a high-risk tolerance.

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Conclusion

In summary, Affirm Holdings presents a compelling investment opportunity for those looking to enter the high-growth BNPL market. The company’s consistent revenue growth, expanding international presence, and strong partnerships with major retailers underpin its growth potential. While competitive pressures and regulatory scrutiny pose challenges, Affirm's brand reputation and market penetration offer it a durable position within the digital payments sector. For investors seeking exposure to fintech and digital payments, AFRM stock could be a valuable long-term investment choice given its current valuation and growth trajectory.