Affirm's stock is sinking. Here's why debating its valuation may be 'fruitless.'

By Emily Bary

'While unsatisfying, shares are subject to market momentum,' Wells Fargo analyst writes

Affirm Holdings Inc.'s stock had run up about 125% in the three months before its latest earnings report. That sort of rally helped set the bar "too high," according to an analyst.

Thus, while Affirm (AFRM) beat expectations with its fiscal second-quarter results Thursday, Wall Street was perhaps disappointed by an outlook for the second half of the fiscal year that implied slowing growth on revenue, adjusted operating income and gross merchandise volume, wrote Piper Sandler's Kevin Barker.

"This guide is likely to reset margin expectations and put some near-term pressure on the stock," he said, while keeping his underweight rating on the stock but upping his target price to $19 from $14.

Affirm shares were falling more than 13% in Friday action.

Wells Fargo's Andrew Bauch said the December-quarter report contained fodder for both sides.

"We suspect bullish investors remain emboldened by [Affirm's] stellar execution in recent prints," he wrote. "That said, while we believe bears may likely concede on that front, they may point to elevated valuation levels proving too difficult to own shares."

From his point of view, valuation debates on Affirm are "fruitless," as the company has no true publicly traded peer.

"While unsatisfying, shares are subject to market momentum," wrote Bauch, who stuck with an equal-weight rating but doubled his price target to $40.

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Still, from the bear camp, Morgan Stanley's James Faucette was trying to make a case that the stock looked overvalued. He said that the company's "rate of improvement doesn't justify valuation."

"We continue to believe that valuation is stretched and remain focused on [Affirm's] ability to close the monetization gap with [Capital One] while accelerating margin expansion and maintaining revenue growth, a combination which may prove challenging," he said.

Faucette has an underweight rating and a $20 target price on the stock.

Mizuho's Dan Dolev, meanwhile, said that Friday's selloff could prove to be a buying opportunity. He deemed the company's outlook "easily" achievable.

He values Affirm at 8 times estimated revenue for calendar 2025, while the stock is currently trading at a "mid-6x" multiple on that metric.

"We continue to believe that [Affirm] is one of the most innovative names in our coverage universe and therefore the 2-turn premium is deemed appropriate," he wrote.

Dolev rates Affirm shares a buy with a $65 target price.

-Emily Bary

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02-09-24 1219ET

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