We may be in a bear market, but when it comes to Affirm Holdings (NASDAQ:AFRM) stock, is it finally looking fit for bulls to buy?
Let’s see what’s happening off and on the Affirm price chart, then offer a stronger, risk-adjusted determination aligned with those findings.
It’s far from a unique story in today’s mostly risk-averse investing environment. Despite huge year-over-year revenue growth, Wall Street treats AFRM stock as though the company is toxic.
Again though, if misery loves company, AFRM’s bullish stakeholders have plenty of other investors to commiserate with.
Shopify (NYSE:SHOP), DigitalOcean (NYSE:DOCN), Block (NYSE:SQ) and many other growth stocks are testaments to a Roaring ’20s market whose only din is a bear.
Of course, there’s been convinced reasons for the pressure.
Growth stocks have taken the brunt of Covid-19-related supply chains worries. And over the past thirteen months a couple broader market rotations out of higher-multiple stocks have adversely impacted AFRM and its peers.
Today as well, it’s not just growth stocks that are under duress.
Russia’s invasion of Ukraine and tightening interest rates to combat spiking inflation have most investors bearishly re-evaluating a very upbeat Roaring ’20s period over the past two years.
Still, “buy now, pay later” (BNPL) outfit Affirm Holdings is one of the more extreme cases of investors sweating a company’s prospects.
Year-to-date, AFRM stock is off a whopping 74%. And since peaking at $176.65 in early November, shares have tumbled roughly 85% while tanking its large-cap valuation of $47 billion to a mid-cap sized $7.5 billion.
At the same time, Affirm’s most recent quarter (the second quarter of fiscal year 2022) had a reported year-over-year revenue growth of 77% on sales of $361 million. Shares trade for a seemingly reasonable 7 times sales. These impressive numbers have proven of little help inoculating AFRM’s vicious bear market cycle.
So, what gives? Aside from an obviously less-cooperative investing environment, AFRM has also had company-specific challenges that have been weighing on shares.
Getting back to Affirm’s second quarter results, marketing expenses ballooned by 267% year-over-year for the second quarter. Furthermore, the company also saw larger credit loss provisions on accounts growing by more than 300%.
Together the two point at a two headed hydra that’s costing Affirm Holdings more money to attract weaker customers.
That’s not a recipe for success. Worse though, with larger operating losses of nearly $200 million this past quarter and negative cash-flow, AFRM’s business isn’t sustainable.
AFRM stock investors are also sweating Peloton Interactive (NASDAQ:PTON).
The at-home fitness outfit has been punished as pricey “new normal” digital bike and treadmill workouts fade in popularity as the door on Covid-19 largely closes, as well as and more costly to life, safety missteps.
And bottom line, as Affirm’s single largest customer in recent years and driving as much as 20% – 30% of the company’s revenues, bulls could be facing an uphill slog as an ongoing entity.
AFRM Stock Weekly Price Chart
Source: Charts by TradingView
Conditions could always change for the better for AFRM stock.
And to be fair, Affirm is already showing less reliance on Peloton, while smartly growing its BNPL relation with Amazon’s (NASDAQ:AMZN) huge retail base.
Today though and if we’re to trust the market’s ability as a forward-looking pricing mechanism, there’s nothing on the weekly AFRM stock chart that indicates buying shares is a healthy choice.
At the moment, Affirm shares are hitting new lows and trending bearishly with no signs of pattern bottoming or secondary help from stochastics or Bollinger support.
If investors are going to buy into this more speculative name, waiting for weekly or even monthly chart confirmation makes sense. And should AFRM stock show signs of bottoming, I’d avoid buying on credit, but allow some operating leverage with an out-of-the-money, intermediate-term vertical.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
