Diversified Financial company Affirm is standing out today, surging to $71.51 and marking a 15.8% change. In comparison the S&P 500 moved only -0.0%.
AFRM currently sits within range of its analyst target price of $70.79, which implies that its price may remain stable for the near future.
Surprisingly, analysts give the stock an average rating of buy, which shows that they believe prices could continue to move. Over the last year, Affirm shares have outperformed the S&P 500 by 19.8%, with a price change of 40.8%.
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 $-0.62 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for AFRM of -115.3. Based on the company's positive earnings guidance of $0.47, the stock has a forward P/E ratio of -208.3.
As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US finance companies is 20.04, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
Affirm's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 8, 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.
With a negative P/E ratio., a higher than Average P/B Ratio, and No published cashflows with an unknown trend, we can conclude that Affirm is probably overvalued at current prices. The stock presents mixed growth prospects because of its strong net margins with a positive growth rate, and a negative PEG ratio.
