Affirm Holdings, Inc. (NASDAQ:AFRM) Stocks Pounded By 31% But Not Lagging Industry On Growth Or Pricing

Affirm Holdings, Inc. (NASDAQ:AFRM) shares have had a horrible month, losing 31% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 34% in the last year.

Although its price has dipped substantially, when almost half of the companies in the United States' Diversified Financial industry have price-to-sales ratios (or "P/S") below 2.6x, you may still consider Affirm Holdings as a stock not worth researching with its 5.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Affirm Holdings

What Does Affirm Holdings' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Affirm Holdings has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Affirm Holdings will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Affirm Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 46%. The strong recent performance means it was also able to grow revenue by 149% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 26% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.6% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Affirm Holdings' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Affirm Holdings' P/S?

Affirm Holdings' shares may have suffered, but its P/S remains high. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Affirm Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Diversified Financial industry, as expected. 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 always need to take note of risks, for example - Affirm Holdings has 1 warning sign we think you should be aware of.

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.