1 Stock That Is a Hard Pass for the Smart Investor

The company's shares have plummeted in price this year. The company's financials have been impacted by the economic and credit cycles. Shrinking consumer spending is predicted to affect its profitability. We don't think investors should be involved in this stock. Continue reading, please...

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Affirm is a digital and mobile-first commerce platform in the US, Canada, and internationally. Point-of-sale payment solutions for consumers, merchant commerce solutions, and a consumer focused app are provided by the company. There are more than 29,000 merchants on it.

Growing e- commerce spending, an increased shift from cash to digital payments, and rising interest in cryptocurrencies were some of the factors that led to a surge in demand. The year has been a rough one for the company.

Growing odds of a recession, rising borrowing costs, and declining consumer spending are some of the macroeconomic issues that AFRM has been dealing with. The Fed raised interest rates by 75 basis points this week and is expected to keep its stance of high inflation until it gets under control.

Analysts have lowered their price targets for the company after they reported fourth-quarter earnings. The company reported a net loss of $186.40 million and a net loss per share of $0.65 for the quarter, which was up from a net loss of $186.40 million and a net loss per share of $0.65 in the year-ago quarter.

There is an Underweight rating and a price target on the stock. The analyst thinks volumes and margins will be constrained by credit performance We don't think shares will work as GMV growth decelerates, margins compress, and credit metrics get worse.

The price target for AFRM was lowered by Bank of America. The company's GMV growth is expected to slow in the next fiscal year.

Over the past six months, the stock has plummeted in price, closing the last trading day at $20.00. It hit a high of $176.55 on November 8, 2021.

I think this could affect AFRM's performance in the coming months.

The financials are getting worse.

The total revenue for the fourth quarter of the fiscal year was $364.10 million. Its operating expenses grew from a year ago. The company had an adjusted operating income of 14.20 million in the prior-year quarter.

The company had a net loss of $186.40 million and a loss per share of $0.75. Its total liabilities increased from the previous year.

There is a leak of growth prospects.

The AFRM's revenues are expected to increase in the first quarter of the next fiscal year. The company is expected to report a loss for the quarter.

The consensus loss per share estimate of $3.20 is worse than the previous year. The company is expected to have a loss per share of $2.48 in the next fiscal year.

It's low profitability.

The gross profit margin of AFRM is lower than the industry average. The stock has a negative EBIT margin of 64.1%. The trailing-12-month net income margin was negative.

AFRM's trailing-12-month ROCE, ROTC, and ROTA are all negative and compare to the industry averages. The stock has a trailing-12-month asset turnover ratio of 0.23%.

The valuations are frothy.

AFRM's forward EV/Sales is 106.1% higher than the industry average. The stock has a forward Price/Sales of 3.38x which is higher than the industry average.

POWR ratings reflect bad news.

An overall rating of F equates to a Strong Sell in our POWR ratings system. The POWR Ratings are calculated using 118 different factors.

Each stock is evaluated based on eight different categories. A grade of F for Sentiment is consistent with the poor earnings growth estimates. The stock has an F rating for stability. The stability grade is justified by the stock's 3.43beta.

The 80 stock Technology- Services industry has a D rating.

We have given grades for quality, growth, value, and momentum as well. You can get all the ratings here.

The bottom line.

The company's financials are expected to be affected by the economy. Credit metrics are expected to get worse because of consumer weakness. The stock is currently trading below its 50-day and 200 day moving averages.

We think investors should avoid the stock given its disappointing financials, bleak growth prospects, elevated valuation, and lower-than- industry profitability.

How does the company stack up against its peers?

There are other stocks within the Technology- Services industry with a rating of A that could be checked out.

The shares fell in pre market trading. The benchmark S&P 500 index has risen over the course of the year, but the AFRM has declined.

Her interest in the stock market led to her becoming a financial journalist. She looks to help retail investors understand the underlying factors before they make investment decisions.

There is more.

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