Shares of financial technology company Affirm Holdings (NASDAQ:AFRM) jumped about 13% on Monday, June 24. This significant move in AFRM stock came after Goldman Sachs analyst Will Nance endorsed the company’s underwriting skills.
Affirm, a buy now, pay later (BNPL) firm, provides modern credit solutions to its consumers.
It’s worth noting that on June 24, Nance initiated coverage of AFRM with a Buy rating and a price target of $42. Nance covers financial services companies, and his top rating was on Remitly Global (NASDAQ:RELY). His Buy rating on RELY stock between October 5, 2002, and October 5, 2023, generated a stellar return of 132.6%.
AFRM’s Underwriting Strength Boosts Market Access
The analyst believes Affirm’s robust underwriting skills give the company a significant competitive edge. This enables Affirm to expand its market reach into subprime and near-prime lending segments, where most traditional players have faced challenges.
The analyst is confident that Affirm is well-positioned to expand its market share, driven by its partnerships with major e-commerce platforms. According to Nance, these partnerships enhance Affirm’s distribution channels and accelerate its customer acquisition opportunities.
Affirm Is Performing Well
It’s worth noting that Affirm is doing well financially. It delivered total revenue of $576 million, up 51% year-over-year in Q3 of Fiscal 2024.
Moreover, its revenue as a percentage of gross merchandise volume (GMV) increased to 9.2%. What stands out is that its GMV growth rate has accelerated consistently, and active consumers and the merchant base are also expanding.
Is Affirm a Good Stock to Buy?
Thanks to favorable industry trends and solid financials, Affirm’s stock has risen by about 127% in one year. However, this rally raises concerns over its valuation. AFRM stock trades at a forward enterprise value to sales ratio of 6.08, much higher than the sector median of 3.07. A high valuation and fear of slowing growth in e-commerce spending amid macro concerns keep analysts sidelined on AFRM stock.
AFRM stock has four Buys, six Holds, and three Sell recommendations for a Hold consensus rating. Analysts’ average AFRM stock price target is 37.44, implying an 11.10% upside potential from current levels.
