MoffettNathanson is the latest analyst firm to sound the alarm on fintech stocks in a report titled, “Fintech: down but not out.” Affirm (NASDAQ:AFRM) is one of the companies under fire, which provides consumers with a “buy now, pay later” option on their purchases. In the year thus far, AFRM stock has declined by over 60%. However, the report added to the company’s woes.
Moffett Nathanson placed a “neutral” rating on AFRM stock. It means the analyst firm expects to see the returns of this stock to be in line with the market’s expected returns. The analyst firm set the target price at $50. Shares closed at $38.70 on Thursday.
MoffettNathanson says that companies like Affirm face the challenge of increased competition as the number of providers has grown. Analysts have projected the company will suffer from increased financing costs and “a sharp deterioration of the U.S. credit environment.”
Despite the near-term headwinds, analysts predict a promising outlook for digital banking. They pointed out that many of the early players in digital banking are successfully growing their businesses and experimenting with new products.
Analysts agreed that digital banking would have a wide-ranging impact on traditional banks. The results are not only to their profit but also to how they operate at an operational level.
Affirm has already emerged on the scene with an innovative product that takes some of the headaches out of tedious card interactions. Merchants will always appreciate lower fees and start to see how attractive it can be for their customers.
Affirm has grown to 11 million active consumers. Affirm’s GMV increased 115% to $4.5 billion in the second quarter. This demonstrates the power of Affirm’s innovations and features, which have made them a go-to choice for merchants across the country.
However, Affirm’s latest quarterly report reveals that its operating losses have widened. Although its top-line growth appears promising, its bottom line has started to go downhill.
Affirm’s recent steep losses raised many questions about its ability to disrupt traditional credit card companies. They offer lower fees for merchants and customers, but these recent setbacks cause concern.
Those recent widening losses and increased debt has made Affirm increasingly risky. Interest rate increases make it more difficult for unprofitable companies to borrow money, and as a result, their stock prices suffer.
Retailers could move over to accepting credit card payments if the fees associated with these transactions are low enough. However, they might struggle with higher fees if Affirm raises its rates to cover losses.
Bottom line, AFRM stock is not a buy. This company has been losing margin for quite some time and will continue to do so as interest rates heat up this year.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.