Shares of buy now pay later company Affirm (AFRM) gained in today’s trading as investors await its Q4 earnings results on August 28 after the market closes. Analysts are expecting earnings per share to come in at -$0.48 on revenue of $605.4 million. This equates to 30.43% and 35% year-over-year increases, respectively, according to TipRanks’ data.
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Ideally, earnings per share should grow faster than revenue as this demonstrates a high degree of operating and financial leverage in the business. Nevertheless, it’s worth noting that AFRM has beaten earnings estimates for five consecutive quarters. Therefore, it’s possible that EPS growth will outpace revenue growth.
In addition, there are reasons to believe that AFRM will continue its winning streak. According to TipRanks’ Bulls Say, Bears Say tool, bullish analysts point to the company’s new partnership with Apple (AAPL) as a positive catalyst for the stock. In fact, one point suggests that GAAP profitability may actually be closer than the consensus expects, which will likely lead to more earnings beats.
However, it is important to note what the bearish arguments are. Indeed, an important factor that could impact Affirm’s success is a slowdown in consumer spending. With the economy slowing down and prices of essential goods still rising, more households may opt to cut back on discretionary purchases, which will not help Affirm.
Options Traders Anticipate a Large Move
Using TipRanks’ Options tool, we can see that options traders are expecting a large 15.38%, or $5, move from AFRM stock in either direction right after its earnings report. The expected earnings move is determined by calculating the at-the-money straddle of the options closest to expiration after the earnings announcement. It’s worth noting that AFRM stock has historically seen many moves that were larger than the current expectation.
Is AFRM Stock a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on AFRM stock based on five Buys, three Holds, and one Sell assigned in the past three months, as indicated by the graphic below. After an 81% rally in its share price over the past year, the average AFRM price target of $41.50 per share implies 27.65% upside potential.
