Affirm Holdings Faces Significant Challenges Amid Economic Uncertainty

Affirm Holdings (NASDAQ: AFRM), a financial technology firm that provides buy now, pay later and point-of-sale payment solutions, has experienced a nearly 30% decline in its stock this year. The downturn can be attributed to rising concerns about the broader economic environment. Specifically, President Trump’s tariffs on trading partners have heightened worries about negative impacts on the U.S. economy and consumer spending. Additionally, China’s unexpectedly strong retaliatory tariffs have intensified global trade disputes, leading to a slowdown in worldwide markets.

The current economic landscape presents several challenges for Affirm. High inflation may hinder the U.S. Federal Reserve from enacting further interest rate cuts, which would adversely affect Affirm’s lending operations. Moreover, a potential recession could decrease demand for the company’s financial products.

Given these circumstances, we hold a negative outlook on Affirm’s stock, considering it an unattractive investment at the current price of approximately $44. This conclusion arises from a comparative analysis of AFRM’s valuation in relation to its recent operational performance and financial state. Our evaluation across critical parameters—Growth, Profitability, Financial Stability, and Downturn Resilience—reveals that Affirm presents a moderate operational performance and financial condition, as detailed in the following sections.

Image by Andrew Khoroshavin from Pixabay

Affirm’s Valuation Compared to the S&P 500

Evaluating price per dollar of sales or profit, AFRM stock appears slightly overvalued when compared to the broader market.

• Affirm holds a price-to-sales (P/S) ratio of 4.7, while the S&P 500 has a ratio of 2.8.
• Moreover, Affirm’s price-to-free cash flow (P/FCF) ratio is 16.7, in contrast to the S&P 500’s 17.6.

Revenue Growth Trends for Affirm

Affirm’s revenues have significantly expanded in recent years.

• On average, Affirm’s top line has grown by 35.8% over the past three years, compared to the S&P 500’s growth of 6.2%.
• In the last 12 months, its revenues surged by 46.3%, increasing from $1.9 billion to $2.8 billion, while the S&P 500 saw a growth of just 5.3%.
• In the most recent quarter, Affirm’s revenues rose 46.6% to $866 million, up from $591 million a year ago, compared to a 4.9% increase for the S&P 500.

Profitability Assessment of Affirm

Affirm’s profit margins lag behind most companies in the Trefis coverage universe.

• Over the last four quarters, Affirm’s Operating Income was $31 million, reflecting a notably low Operating Margin of 1.1% (compared to 13.1% for the S&P 500).
• The Operating Cash Flow (OCF) during this period was $786 million, resulting in a high OCF Margin of 28.1% (versus 15.7% for the S&P 500).
• For the same period, Affirm recorded a Net Income of $-199 million, which results in a Net Income Margin of -7.1% (in comparison to 11.3% for the S&P 500).

Financial Stability of Affirm

Affirm’s balance sheet appears adequate.

• At the end of the latest quarter, Affirm’s Debt totaled $7.5 billion, while its market capitalization stood at $13 billion (as of 4/21/2025). This results in a Debt-to-Equity Ratio of 57.1% (compared to 21.5% for the S&P 500). Note: A lower Debt-to-Equity Ratio is preferable.
• A total of $1.9 billion in cash (including cash equivalents) comprises part of Affirm’s total assets of $10 billion, yielding a Cash-to-Assets Ratio of 17.8% (versus 15.0% for the S&P 500).

Affirm’s Resilience During Economic Downturns

During the recent economic downturn in 2022, AFRM stock performed significantly worse than the benchmark S&P 500 index. Investors remain hopeful for a soft landing for the U.S. economy, but the question remains: how severe could a potential recession be? Our dashboard illustrates the performance of key stocks during and after the last six market crashes.

Inflation Shock (2022)

• AFRM stock fell 90.6%, dropping from a peak of $95.21 on January 3, 2022, to $8.91 on December 27, 2022. In comparison, the S&P 500 experienced a peak-to-trough decline of 25.4%.
• The stock has not yet recovered to pre-crisis levels.
• Since the downturn, the highest the stock has achieved is $80.98 on February 18, 2025, while it currently trades around $44.

Summarizing Affirm’s Financial Standing

After reviewing the performance factors outlined above, Affirm’s standing can be summarized as follows:

• Growth: Extremely Strong
• Profitability: Very Weak
• Financial Stability: Neutral
• Downturn Resilience: Extremely Weak
• Overall: Neutral

Despite Affirm’s moderate performance in several crucial areas, its current high valuation raises concerns regarding the stock as a viable investment at present. Furthermore, ongoing macroeconomic uncertainties, increased risks of recession, and rising interest rates imply the potential for further declines in AFRM stock.