Buy now pay later operator Affirm has been added to the checklist of ‘zombie’ shares compiled by unbiased fairness analysis agency New Constructs.
The analysis agency, which makes use of machine studying and pure language processing to parse company filings and mannequin financial earnings, warns there are many challenges forward for Affirm Holdings Inc.
“Affirm’s stock is at risk of declining to $0 per share as both the company and broader payments industry face significant headwinds,” wrote New Constructs CEO David Trainer, in an announcement. “The idea of ‘buy now, pay later’ may have sounded plausible during a low interest rate and easy money environment, but as the Federal Reserve raises interest rates and recession risks loom, we believe investors should avoid Affirm’s stock.”
Shares of Affirm have fallen 80.3% this yr, outpacing the S&P 500 Index’s
decline of 21.2%. The funds firm, together with different Fintech shares, additionally took a hit not too long ago after the August consumer-price index showed a surprise monthly increase.
New Constructs put Affirm in its ‘danger zone’ in October 2021, and cites the corporate’s money burn as a difficulty. “Since fiscal 2020 (fiscal year ends in June), Affirm has burned through $3.4 billion in FCF excluding acquisitions,” wrote Trainer. “The cash drain at Affirm isn’t slowing as the company burned through $1.5 billion in FCF in fiscal 2022. “
“Even with $1.3 billion in cash and cash equivalents at the end of fiscal 2022, Affirm’s cash balance can only sustain its 2022 cash burn rate for another 10 months or until April 2023,” Trainer added.
The firm had nearly $1.5 billion in money and money equivalents on the finish of fiscal 2021.
“Raising additional capital to fund this cash-burning business would likely come at a high cost, especially as consumers come to grips with the pitfalls and harms of buy now pay later (BNPL) platforms,” wrote Trainer. “Affirm’s severe cash crisis, along with competitive challenges, puts the company’s stock at significant risk of declining to $0 per share.”
New Constructs additionally factors to intensifying competitors from the likes of Apple Inc.
which entered the BNPL house earlier this yr.
“Affirm’s hyper growth is slowing, as competitors increase their offerings and giants such as Apple (AAPL) enter the BNPL market,” wrote Trainer. “Bulls could argue in the past that Affirm’s spending was necessary to grow market share, but as time passes, it’s clearer each day that there is no differentiation between all the BNPL businesses, except, maybe, who loses more money.”
At the top of June 2022 Affirm had round 14 million lively clients, 235,000 lively retailers, and a gross merchandise quantity of $15.5 billion. The firm’s inventory rose earlier than market open on Thursday after it announced that Amazon.com Inc.
will use its cost possibility for patrons in Canada. The inventory then pulled again, falling 6.7% throughout afternoon buying and selling.
Other firms on New Constructs’ zombie stocks checklist embrace AMC Entertainment Holdings Inc.
Rivian Automotive Inc.
Robinhood Markets Inc.
Peloton Interactive Inc.
Beyond Meat Inc.
Uber Technologies Inc.
Shake Shack Inc.
Tilray Brands Inc.
Of 19 analysts surveyed by FactSet, 9 have an obese or purchase score on Affirm, seven have a maintain score, and three have a promote score.