When it comes to investing in new fintech companies and the financing concept of BNPL — buy now, pay later — Affirm stock comes immediately to mind. And what a sensational week of action it's having.
Affirm likely scared the wits of shareholders on Wednesday.
The stock nose-dived 15% in the heaviest volume in more than three weeks. More than 22.5 million shares exchanged hands that day, 42% above its average turnover over the past 50 sessions. Affirm stock also came close to undercutting a critical technical level on its chart, the 50-day moving average.
But after reporting third-quarter results late Wednesday, AFRM went into bungee cord-jumping mode. Shares rose as much as 24% intraday on Thursday, then settled at 151.83. Good for a 13.7% gain.
Volume soared again, rising more than double its usual level.
Even amid this hyper-volatility, the fintech company, started by Max Levchin, entrepreneur and member of the so-called "PayPal mafia" of Silicon Valley fame, boasts a 209% gain from its initial public offering at $49 a share in January.
Is Affirm Stock A Buy Now?
This story addresses aspects of IBD's CAN SLIM investment paradigm, coined by the legendary growth stock trader and founder of Investor's Business Daily, William O'Neil. So, we'll analyze the potential investment from multiple viewpoints: fundamental, technical and the quantity and quality of institutional ownership.
Without all three positive elements in place, a growth investor sports a smaller chance of reaping an outstanding market-beating gain over the long run.
Affirm Stock Today: The IBD Ratings Picture
IBD Stock Checkup shows Affirm with a Composite Rating of 62 on a scale of 1 to 99.
That compares unfavorably with Affirm's industry peers in consumer credit and banking giants, including American Express, Square, Goldman Sachs, Discover Financial and Mastercard. Affirm's Composite, however, beats PayPal, a struggling member of IBD Long-Term Leaders and former member of IBD Big Cap 20.
Ideally, focus on companies with a 90 Composite or higher. However, newer issues often have no earnings history or a very slim record of profitability. For Affirm, the San Francisco-based company lost $1.75 a share in fiscal 2021, ended in June. The Street sees more net losses in FY 2022 (-$1.01) and FY 2023 (-$0.83). Affirm has 269.4 million shares outstanding.
On the positive side, however, Affirm is growing the top line at lightning pace; revenues have grown 86%, 89%, 120%, 98%, 57%, 67%, 71% and 55% vs. year-ago levels in the past eight quarters.
Mutual fund ownership jumped to 321 funds at the end of Q3 this year vs. 255 in June. Bullish.
When investing in a growth stock, make sure it has solid company. Does it belong to a leading sector in the stock market itself?
Overall, that's pretty much the case for Affirm. While its credit card payment and processing industry group ranks in the middle at No. 100 among 197 IBD industry groups for six-month price performance, the finance sector holds a respectable 5th rung among 33 sectors in the IBD stock research tables at Investors.com.
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Affirm Stock: Proper Buy Points
Affirm's stock price corrected in a huge way after its breakout attempt past a 138.08 correct buy point in a narrow IPO base imploded. As you can see on the daily chart, in early February the large cap failed to get much traction after clearing the base's left-side high of 137.98.
Then it tanked just days later. This negative price action triggered the golden rule of investing: cut your losses short. By saving precious capital, you insure the portfolio from a devastating loss. And you ensure the opportunity to invest in a better stock or the same stock in stronger market conditions.
For Affirm stock, the new opportunity came months later.
After falling as much as 68% from its 146.90 peak, AFRM bottomed out at 46.50 in May, then began to rise slowly. It took months for the stock to begin building the right side of a promising new chart pattern. But it eventually crossed above the 50-day moving average and stayed above it.
On Aug. 30, shares gapped up in bullish fashion. A 46% gain in the heaviest volume in the stock's history catapulted Affirm to a five-month high, thanks to a business tie-up with an e-commerce titan. The next several days saw the stock tilt lower in mild fashion. Volume was still heavy, but declined from the mega-active day of Aug. 30.
This constructive price action created a handle on the deep cup.
View a handle as a final shakeout of uncommitted, weak shareholders. Those shares move to firmer hands. The handle clears the deck for a breakout — that is, a strong move to new highs once fresh institutional demand crowds the market for Affirm stock.
AFRM Stock: A Follow-On Entry
On Sept. 10, Affirm stock broke out past the handle buy point of 101.10 on second-quarter results. Volume surged again. This move stoked AFRM's first breakout and legitimate buy opportunity.
Two separate pullbacks in September and early October created additional handle entries. Why? AFRM was still trading beneath the deep cup pattern's left-side peak of 146.90.
Thus, new entry points at 126.56 (10 cents above the Sept. 10 peak) and 133.27 (a dime above the Sept. 24 high) gave traders another chance to buy on strength. Always buy within the 5% buy zone after a breakout.
Since then, the Affirm stock price has moved the way you'd expect: up.
This new pullback to the 50-day moving average, or to the 10-week line on a weekly chart, offers a follow-on buy point after a successful breakout.
In this situation, you want to buy as close as possible to the actual 50-day or 10-week itself.
The 10-week moving average has risen to around 140.32 as of Thursday's close. Buying within 5% to 10% of this price level is acceptable — but only if IBD says the market is in a confirmed uptrend. You want the market acting as a tailwind, not a headwind.
So at this point, Affirm stock is a buy.
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