Affirm Holdings, Inc. (NASDAQ:AFRM) Looks Just Right With A 26% Price Jump

Despite an already strong run, Affirm Holdings, Inc. (NASDAQ:AFRM) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 105% in the last year.

Following the firm bounce in price, when almost half of the companies in the United States' Diversified Financial industry have price-to-sales ratios (or "P/S") below 2.9x, you may consider Affirm Holdings as a stock not worth researching with its 9.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Affirm Holdings

How Affirm Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, Affirm Holdings has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Affirm Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Affirm Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 39%. The latest three year period has also seen an excellent 139% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 23% per year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 9.0% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Affirm Holdings' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Affirm Holdings' P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Affirm Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Affirm Holdings has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.