Affirm's Stock Forecast: BNPL Market Is Hot Amid Square-Afterpay Deal

The BNPL (buy now, pay later) market is getting red hot. After reports that Apple plans to enter the industry, Square announced the acquisition of Australia-based BNPL company Afterpay. While BNPL stock fell on news that Apple is entering the market, Affirm is trading higher on Aug. 2. What’s the forecast for Affirm stock after Square’s acquisition of Afterpay?

Affirm stock has been very volatile in 2021. While it had a stellar listing and almost doubled on listing day, the stock has looked weak. There has been a sell-off in growth names, where a lot of fintech names like Affirm and SoFi have fallen victim.

While markets were comfortable with richly valued growth names a few months ago, investors have been getting increasingly apprehensive of companies that trade at exorbitant valuations.

Square announced the acquisition of Afterpay in an all-stock transaction that values the Australian BNPL company at a premium. Usually, the stock price of the acquirer falls in a transaction that values the target at a premium.

However, Square also reported stellar second-quarter results that could be impacting the price action on Aug. 2. Also, markets see the acquisition of Afterpay as a strategic fit and a natural progression for Square.

Surprisingly, Affirm stock is also rising on news of Square getting into the BNPL market. Markets see Affirm as an acquisition target. Also, the premium that Square has agreed to pay for Afterpay has established a positive outlook for BNPL companies.

The forecast for AFRM stock looks positive. Among the 13 analysts covering the stock, eight rate it as a buy, four rate it as a hold, and one rates it as a sell. Affirm's average target price of $73.62 is a premium of 22 percent over the next 12 months. Its highest target price is $93, while its lowest target price is $55.

Wall Street analysts have a mixed forecast on how much impact Apple’s entry would have on incumbents like Affirm. Mizuho lowered Affirm’s target price by $14 to $76 a few days after the news. Truist thinks that Square’s entry into BNPL is negative for PayPal. Overall, the BNPL market risks getting overcrowded even though the industry is expected to grow at a fast pace over the next many years.

Affirm is a good BNPL stock to buy since the risks of Apple’s entry into the market look somewhat overblown. From a valuation perspective, Affirm trades at an NTM EV-to-EBITDA multiple of 14.4x. The multiple has averaged 12.3x since Affirm listed, while it hit a high of 45.2x.

While Affirm’s valuation multiples at the peak started to look frothy, they look much more reasonable now. The stock looks like a good way to play the BNPL market and the growing penetration of fintech companies. The steep fall in Affirm stock from the 52-week highs looks like a good opportunity to buy this BNPL name at a discount.