When it comes to investing in fintech companies and the financing concept of BNPL — buy now, pay later — Affirm stock comes immediately to mind. And now, after a devastating drop, Affirm is making its strongest rebound since the November 2021 peak at 176.


Affirm (AFRM) shares fell more than 25% during the week ended Feb. 11 following fourth-quarter results. Then more sellers came out of the woodwork following disappointing guidance for 2022.

In late February, analysts at Barclays cut their price target on Affirm to 65 from 105, Benzinga reported.

What’s happened since then?

On March 14, AFRM dropped to as low as 26.02 — two sessions before IBD called a positive change in the current outlook for stocks as the S&P 500 marked a follow-through day on March 16.

Since then, Affirm has rallied as much as 97%. And shares are trying to reclaim a key technical level, the 50-day moving average.

Is Affirm Stock A Buy Now?

At this point, should bullish investors in Affirm consider the current pullback a golden opportunity? Or is it time to sell?

This story addresses aspects of IBD’s CAN SLIM investment paradigm, coined by the legendary growth stock trader and founder of Investor’s Business Daily, William O’Neil. This piece analyzes the potential investment from multiple viewpoints: fundamental, technical and the quantity and quality of institutional ownership.

Without all three positive elements in place, a growth investor faces a lower chance of reaping an outstanding gain over the long run.

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When Will AFRM Bottom Out On Its Chart?

Affirm likely scared the wits of shareholders on Nov. 10.

The stock nose-dived 15% in the heaviest volume in more than three weeks. A total 22.5 million shares exchanged hands that day, 42% above its average turnover over the past 50 sessions. But after reporting third-quarter results late that day, AFRM rose as much as 24% intraday on Nov. 11, then settled at 151.83. Good for a 13.7% gain.

Yet that week turned out to be the current top in Affirm stock. And sellers have been in charge for months.

On Dec. 16, AFRM sank more than 10% in heavy trading. The Consumer Financial Protection Bureau later announced a probe of BNPL firms. Dow Jones Newswires reported that federal regulators are investigating Affirm, Klarna Bank, Afterpay and other competitors for the first time.

Affirm shares ended 2021 at 100.56, up a measly 3% from the closing price of its Nasdaq debut on Jan. 13 that year. This year, the stock has now collapsed as much as 67% year to date.

Before this sell-off, AFRM stock was already showing troublesome technical action on its stock chart.

An early gain of as much as 2.5% on Nov. 29 melted into a 3.5% loss. Plus, the stock got turned away at a critical technical level on its chart, the 50-day moving average.

The fintech company, started by Max Levchin, entrepreneur and member of Silicon Valley’s “PayPal mafia,” has also completed a disappointing round trip of gains from the initial public offering at $49 a share in January.

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Affirm Stock Today: The IBD Ratings Picture

IBD Stock Checkup shows Affirm’s Composite Rating is still a sickly 7 on a scale of 1 to 99.

Ideally, focus on companies with a 90 Composite or higher. However, newer issues often have no earnings history or a very slim record of profitability. So a Composite Rating of 80 or higher among newer issues can also be acceptable.

The San Francisco-based company lost $1.75 a share in fiscal 2021, ended in June. The Street sees more net losses in fiscal 2022 (-$2.65 a share) and FY 2023 (-$1.65).

According to MarketSmith, Affirm now has 284.5 million shares outstanding and a float of 183.5 million freely traded common shares.

The Top Line Is Sparkling

On the positive side, Affirm has grown the top line at lightning pace; revenues have grown 86%, 89%, 120%, 98%, 57%, 67%, 71%, 55% and 77% vs. year-ago levels in the past nine quarters. In the December quarter, the top line hit a record $361 million, up 77% vs. a year ago.

“Legacy payment options, archaic systems, and traditional risk and credit underwriting models can be harmful, deceptive, and restrictive to both consumers and merchants,” the company wrote in its 424b IPO prospectus, filed with the Securities & Exchange Commission.” We believe that they are not well-suited for increasingly digital and mobile-first commerce, and are built on legacy infrastructure that does not support the innovation required for modern commerce to evolve and flourish. Our platform is designed to address these problems.”

Affirm counted 11.2 million active customers for the fiscal second quarter ended in December, up 150% vs. the same three-month period a year earlier. Active merchants on the platform, meanwhile, leapt 2,030% to 168,000. Gross merchandise volume, net of refunds, soared 115% to $4.5 billion.

However, Affirm still posted another quarter of heavy losses. Q4 net loss of 57 cents a share more than quintupled the 11-cent loss seen in the same period of 2020.

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Affirm’s Relative Strength Rating remains weak at 8 on a scale of 1 to 99. Translation: AFRM is outperforming 8% of all companies in the IBD database over the past 12 months. But according to MarketSmith data, the 3-month RS Rating has brightened to a 19.

Also on the bright side? Mutual fund ownership keeps rising. The total has soared to a record 622 funds at the end of the fourth quarter in 2021 vs. 253 in June the same year.

Why is this bullish? You want to see increasing institutional sponsorship. That’s one hallmark of the I in CAN SLIM. According to the Owners & Funds data table in MarketSmith, at least 16 mutual funds getting an A+ rating for superior three-year performance hold shares. For instance, Goldman Sachs Concentrated Growth (GGCRX) has nearly 1% of its assets in Affirm stock.

However, these new fund buyers, for now, have essentially been throwing good money after bad. For individual investors, the smart approach? Buy on the way up. Don’t buy more unless you have first gain a profit in the initial purchase.

When investing in a growth stock, make sure it has solid company. Does it belong to a leading sector in the stock market itself? You can see the top performing sectors on a daily basis within IBD’s stock research tables via IBD Data Tables.

Meanwhile, its credit card payment and processing industry group is tanking. According to MarketSmith, it ranks near the bottom of 197 IBD industry groups for six-month price performance.

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Affirm Stock: Past Proper Buy Points

Soon after going public on the Nasdaq, Affirm’s stock price corrected in a huge way after its breakout attempt past a 138.08 correct buy point in a narrow IPO base imploded. During the week ended Feb. 12, 2021, the large cap failed to get much traction after clearing the base’s left-side high of 137.98.

Then it tanked just days later. This negative price action triggered the golden rule of investing: cut your losses short. By saving precious capital, you insure the portfolio from a devastating loss. And you ensure the opportunity to invest in a better stock or the same stock in stronger market conditions.

For Affirm stock, a new buying opportunity came in September.

After falling as much as 68% from its 146.90 peak, AFRM bottomed out at 46.50 in May 2021, then began to rise slowly. It took months for the stock to begin building the right side of a promising new chart pattern. But it eventually crossed above the 50-day moving average. On Aug. 30, shares gapped up in bullish fashion. A 46% gain in the heaviest volume in the stock’s history catapulted Affirm to a five-month high, thanks to a business tie-up with an e-commerce titan.

The next several days saw the stock tilt lower in mild fashion. Volume was still heavy, but declined from the mega-active day of Aug. 30.

This constructive price action created a handle on the deep cup.

View a handle as a final shakeout of uncommitted, weak shareholders. Those shares move to firmer hands. The handle clears the deck for a breakout — a strong move to new highs once fresh institutional demand crowds the market for Affirm stock.

AFRM Stock: Round-Trip Sell Rule

On Sept. 10, Affirm stock broke out past the handle buy point of 101.10 on second-quarter results. Volume surged again. This move stoked AFRM’s first breakout and legitimate buy opportunity.

Two separate pullbacks in September and early October created additional handle entries. Why? AFRM was still trading beneath the deep cup pattern’s left-side peak of 146.90.

Thus, new entry points at 126.56 (10 cents above the Sept. 10 peak) and 133.27 (a dime above the Sept. 24 high) gave traders another timely chance to buy on strength. Always buy within the 5% buy zone after a breakout.

However, AFRM has made a round trip of gains from these latest buy points. This action brings up another chief IBD sell rule: Do not allow a gain of 10%, 20% or more turn into a loss.

Affirm Stock Today: The Final Analysis

Without question, Affirm stock is deep in base-building mode and trying to bottom out.

As the sell-off accelerated in January, AFRM took out its 200-day moving average. A return back above this long-term technical level would require another big rally from here. Doing so would hint the careful chart reader that the balance of supply vs. demand is shifting toward the latter rather than the former.

But before Affirm even possibly gets back to the 200-day line, watch to see if it comes near 80, a key level of upside price resistance.  The weeks ended in Jan. 14 and Feb. 11 illustrate how sellers at 70 to 80 may pose as overhead supply.

So for now, Affirm stock is not a buy right now.

Most importantly? After any new buy, be sure to manage risk appropriately. Keeping losses manageable, ideally at no more than 8% from your purchase price, allows you stay solvent and in the game. It’s far easier to recover from a 7%-8% loss than a 25% or 50% deficit.

Please follow Chung on Twitter: @saitochung and @IBD_DChung


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This story originally Appeared on Yahoo