After Leaping 71% Affirm Holdings, Inc. (NASDAQ:AFRM) Shares Are Not Flying Under The Radar

Affirm Holdings, Inc. (NASDAQ:AFRM) shares have had a really impressive month, gaining 71% after a shaky period beforehand. The annual gain comes to 101% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking Affirm Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.9x, considering almost half the companies in the United States' Diversified Financial industry have P/S ratios below 2.7x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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. The P/S is probably high because investors think this strong revenue performance will continue. 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.

How Is Affirm Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 46% gain to the company's top line. The latest three year period has also seen an excellent 167% 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 24% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 8.8% per year growth forecast for the broader industry.

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. 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Affirm Holdings, and understanding them should be part of your investment process.

If you're unsure about the strength of Affirm Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.