Affirm Holdings (AFRM) has been trading sideways for several weeks, but that could change when the company reports its fiscal second-quarter results later today. The stock recently changed hands at $76.45, within the range it has held during this consolidation phase. Investors are watching for fresh signals on the buy-now-pay-later (BNPL) leader's performance, which may determine whether the stock breaks out or breaks down.
Technical setup points to potential upside
On the daily chart, AFRM has rebounded sharply from its year-to-date low of $42 to the current level. However, over the past few weeks, the stock has formed a symmetrical triangle pattern, with the two trendlines converging. This pattern often precedes a significant move once the price breaks out of the triangle.
The stock remains above its 50-day exponential moving average (EMA), indicating that bulls still have control in the near term. Additionally, a multi-month inverted head-and-shoulders pattern has been forming, which is a classic bullish reversal signal. If the stock breaks above the triangle's upper boundary, the first target would be the key resistance at $86.90, the high from July. A move beyond that could open the door to $99.90, a level last seen in August of the previous year. Conversely, a drop below the support at $69, the low from July 29, would invalidate the bullish outlook.
Earnings expectations point to robust growth
Affirm is a major player in the BNPL space, and it continues to benefit from resilient consumer demand for credit, even as the U.S. economy faces headwinds. With inflation still elevated and unemployment at 4.2%, more consumers are turning to installment payment options.
Peer companies have already reported strong results. Klarna saw its gross merchandise volume (GMV) jump 18% year-over-year to $36 billion, while revenue surged 27% to $1.2 billion, though its guidance was softer due to its Germany business. Sezzle reported a 51% annual growth rate, with GMV up 37%.
According to Yahoo Finance data, analysts expect Affirm's revenue to have risen 26.3% in the second quarter to $1.1 billion. For the full fiscal year, revenue is projected at $4.2 billion, up 30% year-over-year. More importantly, the company's focus on profitability is paying off. Earnings per share (EPS) are expected to come in at $0.85, up sharply from $0.53 in the same period last year. For the year, EPS is forecast to jump from $1.75 to $3.25.
Valuation and analyst views
Affirm's strong revenue and profit growth may help justify its valuation, which has been a point of debate. The stock trades at a forward price-to-earnings ratio of 25, more than double the financial sector median of 25 and higher than the tech sector average of 22. Morgan Stanley recently cut its outlook to equal-weight, citing valuation concerns.
On the other hand, several analysts have become more optimistic. Oppenheimer and BMO Capital Markets raised their price targets to $100 and $86, respectively, pointing to ongoing growth in the BNPL industry and falling default rates. Truist, Bernstein, and Cantor Fitzgerald also boosted their targets.
As the earnings report approaches, the market will be watching not only the numbers but also management's guidance. A strong beat and upbeat outlook could provide the catalyst for a breakout, while any disappointment could trigger a selloff. Investors should keep an eye on the key technical levels mentioned above.
This article is for informational purposes only and does not constitute financial advice.
