The stock of Affirm (NASDAQ: AFRM) debuted in January 2021 at $49 per share and had risen to more than $176 by November of that year. However, the stock has now cratered by 75.5% this year.
Buy Now Pay Later (BNPL) stocks like Affirm have been hit hard this year as soaring inflation and rising interest rates have given rise to fears of a decline in consumer spending.
Another major concern among investors has been that as cash becomes tight, BNPL borrowers could default on their payments.
Affirm is Confident of Rising Up to the Challenge
However, Affirm believes it is well-placed to weather the potential storm. The BNPL company listed its reasons on its fiscal Q3 earnings call.
Affirm’s management pointed out that, unlike many of its competitors, the company does not charge a late payment fee, which it says would appeal to consumers during a downturn. The company also stated that it does not expect rising interest rates to immediately ramp up its borrowing costs.
This is because most of the company’s credit funding comes from fixed-rate debt. Affirm’s major enterprise partners include Amazon (AMZN) and Shopify (SHOP). It also recently added Stripe to its partner list.
The Analyst’s Delinquency Tracker Indicates Otherwise
However, Mizuho Securities analyst Dan Dolev‘s delinquency tracker for May indicated a slightly worrying trend. This delinquency tracker in the middle of the second quarter indicated a “less optimistic” view.
This tracker indicated that 30-day delinquencies went up in May for both interest-bearing and split-pay loans. Split-pay loans allow shoppers to pay for purchases over a series of interest-free payments.
Delinquencies are defined as payments that are at least 30 days late.
The analyst cautioned that while he approved of “Affirm’s enterprise partnerships,” Dolev expects the “upcoming June data to be the critical determinant of sentiment for AFRM.”
Dolev reiterated a Buy rating on the stock and a price target of $50, which implies an upside potential of 111.7% at current levels.
Wall Street analysts are cautiously optimistic about the stock with a Moderate Buy consensus rating based on seven Buys, five Holds, and three Sells. The average Affirm Holdings price target of $38.79 implies an upside potential of 64.3% at current levels.
Bottom Line
It remains to be seen how Affirm will respond to the difficult macroeconomic situation. However, analysts, for now, have taken a cautiously optimistic view.
Interestingly, AFRM’s website data indicates a more encouraging trend. This data indicates that Affirm’s total unique visitors on all devices in fiscal Q4 are up by a resounding 1463.12% year-over-year.
