Standing out among the Street's worst performers today is Affirm, a diversified financial company whose shares slumped -5.7% to a price of $55.31, 11.17% below its average analyst target price of $62.27.
The average analyst rating for the stock is buy. AFRM underperformed the S&P 500 index by -4.0% during today's afternoon session, but outpaced it by 12.7% over the last year with a return of 35.0%.
Affirm Holdings, Inc. operates payment network in the United States, Canada, and internationally. The company is included in the financial services sector, which includes a wide variety of industries such as credit services, mortgage, banking, and insurance. Owing to this variety and the fast pace of innovation within these industries, investors may struggle to make sense of this sector.
As evidenced by the financial meltdown of 2008, seemingly healthy financial services companies — from insurers to investment banks — may see their market value plunge to zero in a matter of months. While the financial crash was likely a once-in-a-generation event, it highlights the volatility that is inherent to the sector. Financial innovation creates opportunities, but also new types of risk that investors and even the companies themselves may not fully understand.
Affirm does not release its trailing 12 month P/E ratio since its earnings per share of $-1.41 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for AFRM of -39.2. Based on the company's positive earnings guidance of $0.47, the stock has a forward P/E ratio of -273.1. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the finance sector has an average P/E ratio of 20.04, and the average for the S&P 500 is 29.3.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Affirm's P/B ratio is 6.12 -- in other words, the market value of the company exceeds its book value by a factor of more than 6, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.86 as of the third quarter of 2024.
Since it has a negative P/E ratio., a higher than Average P/B Ratio, and No published cashflows with an unknown trend, Affirm is likely overvalued at today's prices. The company has mixed growth prospects because of a negative PEG ratio and strong net margins with a positive growth rate. We hope you enjoyed this overview of AFRM's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
