Affirm Holdings stock has plummeted this year, weighed down by the pause on student loan repayments and fears that loan delinquencies could rise in a slowing economy. Despite the challenges, this analyst remains optimistic.
In its recent fourth-quarter earnings report, Affirm (ticker: AFRM) said its provision for credit losses grew to $72.7 million, up from $25.5 million in the year-ago quarter. Meanwhile, the 30-day delinquencies in one of its trusts increased by 48 basis points compared with June — a faster pace than even some bulls were expecting.
For Mizuho Securities analyst Dan Dolev, "the bad news likely isn't as bad." For one, he says that the company's Buy Now, Pay Later (BNPL), or split pay, offering creates a mismatch when looking at delinquent loans. BNPL payments are typically repaid within the same quarter that they are issued in, but the company records a missed payment 120 days after the first missed payment, meaning that the charge-off will not show up until the following quarter.
Dolev urges investors to instead look at other delinquency statistics, including a key metric that measures the delinquent loans over 30 days past due. This metric actually improved in the most recent quarter, Dolev said, dipping to 3.4% from 3.7% in the third quarter and 3.5% in the second quarter.
The analyst reiterated a Buy rating on the stock, but trimmed his price target to $42 from $50 to reflect the company's conservative guidance for fiscal 2023, which fell short of prior expectations.
Affirm shares were mostly rising 1% at $22.53. The stock has lost 77.6% this year.