Affirm: Buy Now, Profit Sooner

Affirm

Over the holiday weekend, we witnessed a massive standstill in the aviation industry. More than 3,000 flights faced cancellations due to the surging spread of this milder strain of the COVID illness. Despite the surge in the Delta and Omicron variants in 2021, this year has seen a dramatic spike in airline travel. 

Even as Omicron spreads, a rebound from the holiday season should suffice. Any weakness that the companies experienced over the last month should subside. Americans are more comfortable with airline travel and the government has lifted travel bans on places like South Africa. 

Dips in Delta Airlines (DAL) and Southwest Airlines (LUV) stock are likely. But they won’t be permanent. There is a strong chance that we will witness a reduction in the number of days that passengers must be quarantined before traveling – from 10 days down to 5 days – assuming they have passed a test. 

While I’m bullish on airlines over the long-term (because the government will bail them out despite how many times they buy back their stock), there is one pullback stock that I think too many investors have ignored. 

Let’s talk about the fintech sector. 

State of the Economy

As you know, I’m always paying close attention to the F-Score and Z-Score as a way to identify stocks that are performing well in “today’s economy.” Last year, there was a stock that swelled that personified the state of the U.S. economy at the height of COVID-19.

That stock was Rent-A-Center (RCII). If you don’t know about Rent-A-Center, it’s quite a business model. Basically, consumers rent products from the company like televisions, couches, and lamps. Louis CK has done a comedy bit about the day that someone has a repo man “take the lamp away” because the customer missed the payments. 

It sounds absurd that people will pay obscene interest rates to rent products like this. But there’s a reason why this business model operates. You see, tens of millions of Americans have weak credit or no credit. They can’t obtain a credit card, and they must rely on this business model. In fact, some estimates suggest that more than 20% of Americans lack a credit score.

This trend hasn’t gone away. Despite the flush of cash into the economy over the last 18 months, Americans’ savings are starting to dwindle again. The average American overspent during this holiday season. On average, Americans spent $1,249 during this season. 

Roughly 1 in 3 said that they spent more than they could afford, according to LendingTree. What does this say about the state of the economy? That more and more Americans are putting things on credit when and where they can. They are buying now… and paying for it later. And one company is at the center of this trend.

Keep it Firm with Affirm

Affirm Holdings (AFRM) is a fintech company that was founded in 2012. It operates in installment loans for products that you can purchase through brick and mortar or online retail locations. You might recognize the company if you’ve ever purchased something on Amazon.com. 

The Buy Now, Pay Later (BNPL) model is an alternative to traditional credit card debt with much more attractive terms for consumers. Customers can sign up for the service quickly and it requires modest, same-sized payments over time. Right now, this BNPL movement is growing. 

At the same time, more merchants are eager to sign up and utilize this model. At the height of the pandemic, the company’s demand surged, particularly with partners like Peloton. The number of active customers year-over-year increased by 124%. 

But at the same time, the Affirm stock has pulled back. Shares are now down more than 44% from their near-term high. Despite that drop, the model for financial assistance remains robust. We’re talking about money and credit in a consumer economy – not meatless burgers

The stock appears to have gotten well ahead of itself because of the euphoria of the at-home stocks. But now that the stock has pulled back, it remains very attractive well-above its IPO price of $46.50.

I believe that Affirm is going to be one of the top stocks of 2022. In fact, I think that it could easily be a takeover target as well should the stock continue to drop. I think it’s worth picking up a few shares and holding for the year ahead. 

I can’t wait to start trading with you in 2022. Happy New Year!

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

Related Articles

May 2022 Perfect Stocks

May 2022 Perfect Stocks

The Federal Reserve has spoken. And in a surprise, the central bank won’t begin its Quantitative Tightening program until June 1. In addition, it won’t start

Read More »
April 2022 Perfect Stocks

April 2022 Perfect Stocks

You know the drill… It’s time for our monthly update of stocks with great balance sheets, solid valuations, and a little bit of security as

Read More »
May 2022 Perfect Stocks

May 2022 Perfect Stocks

The Federal Reserve has spoken. And in a surprise, the central bank won’t begin its Quantitative Tightening program until June 1. In addition, it won’t start

Read More »