Affirm Holdings (NASDAQ: AFRM) burst on the scene when it went public in January 2021 at about $90 per share. Since then, the stock of this buy now, pay later company has seen quite a bit of volatility, jumping up to $168 per share in November before dropping back to its current price of about $106 as of Dec. 30 — up about 17% year to date (YTD).
The recent price decline was not due to a drop in revenue or slowdown in growth, rather there were other factors at play, including a valuation that got overheated due to the fast run-up in stock price. Right now, with the recent pullback, Affirm is available at a more reasonable valuation and looks like a good buy. If the stock price still seems out of reach, know that you can invest in Affirm for the cost of a penny stock. Here’s how.
Invest by dollar amount, not by the share
If you are unfamiliar with fractional share investing, perhaps make it a New Year’s resolution to learn about. It’s a fairly new concept that’s only been around a few years — and has been made more popular in recent years by online brokerage like Robinhood. Through fractional shares investing, or stock slices as some brokers call them, you can invest in a fraction of a share, as opposed to buying whole shares of a stock.
So, if a stock like Affirm is on your radar, but is a little too high-priced at over $100 per share to buy multiple shares, you could simply invest whatever amount is comfortable, whether that’s $10 or $50. Whatever dollar amount you choose to invest, you buy that percentage of the stock. So, a $50 investment in Affirm would buy you half a share. If you added $50 per month, you would soon have multiple shares.
The other great thing about fractional shares investing is that you realize the full gains on the stock. So, if Affirm’s price increases 60% in 2022 — which is the median consensus estimate by analysts — then your fractional shares would also grow by 60%.
Essentially, fractional shares allow you to invest in any stock for the cost of a penny stock. That even goes for an astronomically high-priced stock like Amazon, which is currently trading at about $3,400 per share.
Why Affirm is a good buy
As mentioned, Affirm is a buy now, pay later (BNPL) company, which means that it allows customers to buy items in installments, often without interest. But even in cases where interest is charged, it is included upfront in the installment payments so that users know exactly what they are paying. Affirm can be used either online or in person at checkout, and it’s all done through its mobile app.
When the purchase is made, the app instantly assesses your credit and either accepts or rejects the purchase on the spot. If the item is approved, the user is presented with various installment payment options and the fixed cost for each, including interest, if applicable. The money is loaned through Affirm to the consumer through one of Affirm’s banking partners. There are also no late fees or annual fees.
This fintech is not a bank, so it doesn’t make revenue on interest. Rather, it generates revenue from fees paid by merchants every time the service is used. Affirm is available at many retailers, including Walmart, Target, Amazon, and Shopify, to name a few.
Affirm has seen huge revenue gains in its first year as a public company, as many see it as an alternative to credit cards. Affirm is one of the largest pure-play BNPL companies, but the major credit card and payment companies have also launched their own services, seeing its rising popularity.
Younger adults have embraced BNPL, as 41% of millennials are using it (up double from 2019), while 36% of Gen Zers use it (up six-fold from 2019), according to Cornerstone Advisors. Overall, about $100 billion was spent using BNPL services in 2021, up from $24 billion in 2020.
Affirm has been growing rapidly, as revenue jumped 55% in the first fiscal quarter ended Sept. 30, driven by an 84% increase in gross merchandise volume (GMV). For the second quarter, it raised its revenue estimates to $330 million from $320 million. For the full fiscal year it raised its revenue estimates to $1.25 billion from $1.22 billion.
The recent drop in stock price had more to do with investor fears that hit all credit card and payment companies over inflation and the omicron variant. That brought down its price-to-sales from a high of around 45 to its current 27. At this valuation, and with its excellent growth prospects, Affirm is a good buy right now — and you can get it for the cost of a penny stock with fractional shares.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool owns and recommends Affirm Holdings, Inc. and Amazon. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.