The past six months have been a windfall for Affirm’s shareholders. The company’s stock price has jumped 88.1%, hitting $87.26 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Affirm, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Affirm Not Exciting?
We’re glad investors have benefited from the price increase, but we don't have much confidence in Affirm. Here are two reasons why AFRM doesn't excite us and a stock we'd rather own.
1. Previous Growth Initiatives Have Lost Money
Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.
Over the last five years, Affirm has averaged an ROE of negative 22.1%, a bad result not only in absolute terms but also relative to the majority of firms putting up 25%+. It also shows that Affirm has little to no competitive moat.
2. High Debt Levels Increase Risk
Affirm reported $2.23 billion of cash and $7.82 billion of debt on its balance sheet in the most recent quarter.
As investors in high-quality companies, we primarily focus on whether a company’s profits can support its debt.
With $825.4 million of EBITDA over the last 12 months, we view Affirm’s 6.8× net-debt-to-EBITDA ratio as inadequate. The company’s lacking profits relative to its borrowings give it little breathing room, raising red flags.
Final Judgment
Affirm isn’t a terrible business, but it isn’t one of our picks. After the recent rally, the stock trades at 37× forward P/E (or $87.26 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at the most entrenched endpoint security platform on the market.
Stocks We Like More Than Affirm
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
