Why Affirm's Downgrade is an Opportunity for Long-Term Investors - 7investing 7investing
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Why Affirm’s Downgrade is an Opportunity for Long-Term Investors

A recent Wall Street sell recommendation is far too short-term focused. Longer-term investors should look at these more important metrics instead.

October 25, 2023

Earlier today, Compass Point downgraded the shares of Affirm Holdings (Nasdaq: AFRM) to sell and issued a price target of $13.00. The downgrade appears to have triggered a market selloff, as shares of Affirm are down 17% in Wednesday trading to $16.24.

In his report, analyst Giuliano Bologna mentioned the following:

“As the loan sale environment remains challenging with higher interest rates, increasing concerns about the macro backdrop and consumer credit, we believe the risk of the environment remaining under pressure for a few more quarters is high and that it is too early to call for an inflection.”

They continued:

“At the same time, we believe consensus estimates are already pricing in a reasonable FY24 GMV at $24.3B compared to guidance of more than $24B as of last quarter and that margin upside would likely come from a re-acceleration in GMV growth and an improving loan sales environment.”

And then finally:

“Putting this together, we believe the near-term setup has more downside risks for AFRM shares and that the upside optionality is more limited.”

If you’re a short-term trader or market speculator, these things might be important. After all, we are indeed in a rather funky macroeconomy that’s serving as quite a headwind for consumer discretionary purchases.

And for companies like Affirm — who borrow money to lend to consumers in order to make purchases of high-dollar items — that certainly could put a damper on short-term gross merchandise volumes and revenues.

Compass Point just picked up Affirm earlier this summer. Back in June, they initiated coverage with a “Neutral” rating and issued a $14.50 price target. In that report, they acknowledged Affirm’s “attractive unit economics” had the potential to scale and to leverage its cost base over time.” But it also said the stock’s [premium] valuation “keeps us on the sidelines for now.”

But this sell recommendation is really missing the bigger-picture. Affirm is accomplishing some incredible things right now, which astute investors should be paying more attention to.

What Investors Should Be Watching

We share three important metrics that investors interested in Affirm should be paying special attention to.

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