Affirm stock flashes bullish engulfing signal as analysts stay optimistic

Affirm stock price popped by over 10% on Tuesday as investors cheered the company’s presentation at its event. It jumped to a high of $73.40, up sharply from last month’s low of $60.40. It remains up by 135% from its lowest level this year, with its market capitalization rising to over $25 billion.

Affirm reaffirmed its business model at investor day 

Affirm, one of the biggest players in the booming buy now, pay later (BNPL) industry, held an event for its shareholders on Tuesday.

In it, the company reiterated that its payment network would be renewed by Amazon, the biggest player in the e-commerce space in the United States. The new deal will see it offer its services through January 2031.

Max Levchin, the founder and CEO, also reiterated that its business model was working well despite not charging late fees to customers.

He argued that avoiding late fees enabled the company to be fully aligned with its customers. Also, the fees were not necessary as the company has continued to experience low default rates, partly because of its high underwriting standards.

Affirm, like other top companies in the industry, is benefiting as more customers become aware of its service, which is normally shown as a checkout on most websites.

The company is also benefiting from the slowing economy and high inflation, which has remained above 3% this year. More customers view its zero-interest rates policy as being much better than credit cards, which charge double-digit interest rates.

However, Affirm and other similar companies have been criticized for putting more people in debt.

Growth momentum is accelerating 

The most recent results showed that Affirm’s business was growing. Its gross merchandise volume (GMV) rose by 42% in the last quarter, while its revenue soared by 34% to $933 million.

Most of this revenue growth was because of its network revenue, which soared by 38%. Its interest income rose by 20%, helped by a 19% increase in average loans held for investment.

The operating income rose $64 million, while the 30-day delinquency rate dropped by 4 basis points from the same period last year. This rate, however, increased by 45 basis points from the previous quarter.

Affirm expects that the company’s revenue will be between $1.03 billion and $1.06 billion in the current quarter, while its adjusted operating margin will be between 28% and 30%.

Analysts are largely bullish on the Affirm stock price, with the average target being $92.68, much higher than the current $73.40. The most recent analysts to deliver an upbeat rating for the company were from companies like Wolfe Research, Truist, and Bank of America.

Affirm stock price technical analysis 

The daily timeframe chart shows that the AFRM stock price bottomed at $30.9 in April this year and peaked at $99.78 in August.

It then pulled back and bottomed at $60 on November 21. It has formed a bullish engulfing pattern, which is made up of a big bullish candle that fully covers the previous bearish one. This is one of the most popular bullish reversal candles in technical analysis.

The stock has moved above the 50-day and 100-day Exponential Moving Averages (EMA) and formed what looks like an inverse head-and-shoulders pattern.

Therefore, the most likely scenario is where it continues rising as bulls target the key resistance level at $80. This target is its highest point in October and November this year. A move above that level will point to more gains, potentially to the year-to-date high of $99.8.

The bullish outlook will become invalid if the stock drops below the key support at $60.30.

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