Assessing the Outlook for Affirm After Klarna’s Data Decision and Recent 14% Share Price Drop

Are you trying to figure out what to do with your Affirm Holdings stock, or maybe wondering if now is the time to jump in? You are not alone. After a rollercoaster year, Affirm’s stock has given investors plenty to talk about. In just the last twelve months, the share price has soared nearly 94%, and since its IPO, it is up an astonishing 302.5%. If you zoom in a bit closer, you will see its price dipped 2.3% this past week and is down more than 14% over the last month. Clearly, volatility and opportunity often go together in this case.

Some of this movement is tied to shifting tides in the industry. For example, news that key “buy now, pay later” rival Klarna is holding off on sharing loan data may change how lenders, credit bureaus, and investors evaluate BNPL businesses. A possible Klarna IPO in New York is also putting fresh attention on leading names across the sector. Regulatory changes and tech partnerships can shift risk perception for Affirm, which is reflected in price swings.

Before you get swept up in the headlines, let us talk numbers. According to a standard six-check valuation assessment, Affirm scores a 1 out of 6 for being undervalued, meaning it only comes out ahead on one metric. That does not mean the story ends there. In the sections that follow, we will break down those valuation checks, and then explore a smarter, more actionable way to understand what Affirm’s really worth.

Affirm Holdings scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Affirm Holdings Excess Returns Analysis

The Excess Returns valuation model helps investors assess whether a stock is creating value above its cost of equity capital. Instead of focusing solely on future free cash flows, this method measures how effectively a company turns invested equity into profit. Essentially, it examines whether a company earns more on its capital than it costs to use that capital.

For Affirm Holdings, the numbers are clear and straightforward. The company's Book Value stands at $9.44 per share. Analysts estimate its stable earnings per share (EPS) at $1.62, based on projected returns from six different analysts. With an average Return on Equity of 11.77%, Affirm appears to generate moderate efficiency with its capital. The cost of equity is $1.11 per share, so the company produces an excess return of $0.51 per share. This is the profit made beyond the expected cost of capital. Looking further ahead, the stable Book Value is forecast to reach $13.76 per share, according to projections from four analyst sources.

However, when the Excess Returns model crunches all this data, it suggests that Affirm Holdings is significantly overvalued by roughly 212.5% over its intrinsic valuation. In other words, the current share price is well above what the fundamentals indicate the stock is truly worth using this method.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Affirm Holdings.

Our Excess Returns analysis suggests Affirm Holdings may be overvalued by 212.5%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Affirm Holdings Price vs Sales

For rapidly evolving tech companies like Affirm Holdings, the Price-to-Sales (P/S) ratio is often considered the best valuation tool. This is because newer or fast-growing companies may not yet be consistently profitable, but sales figures still provide a strong window into their scale and potential. Typically, a higher P/S ratio can be justified if investors expect swift revenue growth or see Affirm as a lower-risk bet compared to peers.

Currently, Affirm’s P/S ratio stands at 7.56x. To put this into context, the average for its industry peers is 3.99x, while the broader Diversified Financial industry average is even lower at 2.87x. On the surface, Affirm appears much more expensive than its sector benchmarks. However, this is where the Fair Ratio from Simply Wall St becomes relevant. The Fair Ratio, calculated with insights about Affirm’s revenue growth forecasts, profit margins, size, and risk profile, estimates a fair P/S multiple of 4.42x for the company. This tailored benchmark offers a more nuanced view than standard industry or peer comparisons, making it especially useful for a company with Affirm’s specific growth and risk profile.

Comparing the current P/S ratio of 7.56x to the Fair Ratio of 4.42x, Affirm Holdings appears meaningfully overvalued using this approach.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Affirm Holdings Narrative

Earlier, we alluded to an even better way to interpret valuation, so let’s introduce you to Narratives. A Narrative is a powerful yet simple approach where you combine your outlook on a company’s future, including its story, key risks, and drivers, with financial assumptions like future revenue, earnings, and margins to arrive at your own fair value estimate.

Narratives link the “why” behind a company’s prospects to the actual numbers, helping you see how your beliefs about Affirm, such as future market expansion or evolving competition, translate into tangible forecasts and valuation. On Simply Wall St's platform, you can easily create, share, and compare Narratives on the Community page, alongside millions of other investors. This makes the process accessible to everyone, no matter your investing experience.

This tool dynamically updates as new announcements or earnings reports appear, ensuring your view stays relevant. Narratives empower you to decide when to buy or sell by comparing your fair value to the current price and seeing how the community’s perspectives differ. For example, one investor may expect Affirm’s future value to reach $115, citing global expansion and fintech innovation, while another estimates only $64, highlighting margin pressures and increasing competition.

Do you think there's more to the story for Affirm Holdings? Create your own Narrative to let the Community know!

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.

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