The Pullback in Affirm was a Severe Overreaction

Oct 26, 2023

Keep an eye on Affirm Holdings (AFRM).

A good deal of the downside is an overreaction on news that doesn’t even impact it. Earlier today, European payments company, Worldline SA (WLN) cut its outlook, blaming weakening conditions in Germany and a pullback in discretionary purchases.

In fact, as noted by

“Worldline said it is now expecting 6% to 7% growth in organic sales for the year, after 7.7% growth through the first nine months, after previously forecasting 8% to 10% growth this year. Worldline also cut its free cash flow guidance, now seeing a conversion of 30% to 35%, from 46% to 48% previously. Its margin guidance now calls for a decline of about 150 basis points, vs. a previous forecast of a rise of more than 100 basis points.”

“It also scrapped its 2024 guidance. CEO Gilles Grapinet said the current economic situation is generating an accelerated shift in consumer behavior, from discretionary to non-discretionary spending, which penalizes both growth and profitability.”

However, stocks like Affirm don’t have a lot of exposure to Germany and Europe, say analysts at Mizuho. That means most of the pullback in AFRM was an overreaction. Plus, what Worldline is saying is at odds with what Visa’s CEO has been saying about the resiliency of Europe.

Mizuho added, “We view the worries as overblown for the following reasons: (1) Visa specifically did not call out a recession in its initial FY24 guide, which it provided yesterday. Plus, when asked about Europe, Visa’s CEO mentioned ‘resiliency’ and feeling ‘good about what’s happening’ in the EU ex. UK. (2) Stocks like AFRM and SQ have little to no exposure to Germany & Europe, which means the negative stock reactions are unmerited.”

In short, keep an eye on AFRM.

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