Affirm's (AFRM) Explosive Rally: Is the Buy Now, Pay Later Boom a Sustained Growth Opportunity or a Bubble?

Affirm Holdings (AFRM) has experienced a dramatic stock price surge in recent months, fueled by strong quarterly earnings, strategic partnerships, and a booming buy-now-pay-later (BNPL) sector. However, the company’s valuation metrics—trailing P/E of 590.22 and EV/EBITDA of 193.84—raise critical questions about whether this rally is grounded in fundamentals or driven by speculative fervor. To assess the sustainability of Affirm’s growth story, we must dissect its valuation合理性, momentum strength, and sector positioning against a backdrop of intense competition and regulatory scrutiny.

Valuation: A Premium Built on Growth Expectations

Affirm’s financials reveal a mixed picture. While the company reported $3.22 billion in trailing revenue and a net income of $52.19 million (1.62% margin), its profitability remains weak, with a negative operating margin of -2.71% and a return on equity of just 1.80% [3]. These metrics suggest that Affirm’s current valuation—$29.41 billion market cap—is not supported by earnings but rather by optimism about future growth.

The company’s trailing P/E ratio of 590.22 is astronomically high, even for a high-growth fintech firm. For context, Klarna’s projected 2025 valuation multiples are significantly lower: 15x P/E and 11x EV/EBITDA [1], while Afterpay (now part of Block) trades at 11x EV/EBITDA [2]. Affirm’s EV/EBITDA of 193.84 dwarfs these peers, implying that investors are pricing in a future where Affirm dominates the BNPL sector with margins and profitability far exceeding current levels. Such expectations may be unrealistic unless the company achieves a dramatic shift in its operating model.

Momentum: Earnings Surprises and Analyst Optimism

Affirm’s recent earnings report provided a temporary tailwind. The company exceeded expectations with Q4 2025 EPS of $0.20 (vs. $0.11 estimated) and revenue of $876.42 million (up 32.9% YoY) [2]. This performance triggered analyst upgrades, with Jefferies and Stephens raising price targets to $95 and $93, respectively [5]. However, the stock’s post-earnings trajectory has been volatile. After hitting a 52-week high of $100.00 in late August, AFRM fell 5.8% in early September amid concerns about competition from Klarna’s U.S. IPO plans [1].

This volatility underscores the speculative nature of Affirm’s rally. The stock’s price action is heavily influenced by short-term sentiment rather than long-term fundamentals. For instance, trading volume spiked to 43 million shares on August 29, 2025, during its earnings-driven peak, but dropped to 3 million shares by mid-August [1]. Such swings suggest that retail and institutional investors are trading on momentum rather than a deep conviction in Affirm’s business model.

Sector Positioning: A High-Stakes Game in a Regulated Market

The BNPL sector is undeniably on an upward trajectory. Global BNPL GMV is projected to reach $560.1 billion in 2025, growing at a 10.2% CAGR to $911.8 billion by 2030 [1]. Affirm’s Q3 2025 GMV of $8.6 billion (36% YoY growth) outpaced the industry’s 25% growth rate, driven by partnerships with Amazon, Apple, and Shopify [4]. Its active user base of 22 million and 94% repeat transaction rate further highlight its market penetration [3].

However, Affirm’s dominance is under threat. Klarna’s integration with Apple Pay and its U.S. IPO ambitions, coupled with Afterpay’s scale under Block, are intensifying competition. Regulatory risks also loom large. The U.S. Consumer Financial Protection Bureau (CFPB) has classified BNPL services as “credit products,” while the EU’s updated Consumer Credit Directive mandates affordability checks [6]. These developments could increase compliance costs and erode profit margins for smaller players, but Affirm’s partnerships and AI-driven repayment tools may give it an edge [3].

Conclusion: A Bubble or a Justified Bet?

Affirm’s explosive rally reflects the market’s belief in the BNPL sector’s long-term potential. However, its valuation multiples are unsustainable unless the company achieves profitability and margin expansion far beyond current projections. While Affirm’s strategic partnerships and GMV growth are compelling, the stock’s high P/E and EV/EBITDA ratios suggest that investors are paying a premium for future possibilities rather than present realities.

For long-term investors, Affirm could be a high-risk, high-reward play if it navigates regulatory challenges and scales profitably. For short-term traders, the stock’s volatility offers opportunities to capitalize on sector momentum. Yet, the current valuation appears to hinge on speculative bets rather than a proven path to profitability. As the BNPL sector matures, Affirm’s ability to justify its multiples will depend on its capacity to transform from a high-growth fintech into a sustainable, cash-flow-positive business.

Source:
[1] Buy Now Pay Later Global Business Report 2025 [https://www.fintechfutures.com/press-releases/buy-now-pay-later-global-business-report-2025-bnpl-payments-to-grow-by-13-7-to-surpass-560-billion-this-year-driven-by-klarna-afterpay-paypal-and-affirm-forecast-to-2030]
[2] Affirm (NASDAQ:AFRM) Reaches New 1-Year High on Strong Earnings [https://www.marketbeat.com/instant-alerts/affirm-nasdaqafrm-reaches-new-1-year-high-on-strong-earnings-2025-08-29/]
[3] Affirm Holdings (AFRM) Financial Ratios [https://stockanalysis.com/stocks/afrm/financials/ratios/]
[4] Affirm (AFRM) Earnings Report Q3 2025 [https://www.cnbc.com/2025/05/08/affirm-afrm-earnings-report-q3-2025.html]
[5] Affirm stock price target raised to $93 by Stephens on strong earnings [https://www.investing.com/news/analyst-ratings/affirm-stock-price-target-raised-to-93-by-stephens-on-strong-earnings-93CH-4216432]
[6] BNPL's Second Act: Why Buy Now, Pay Later Needs to Grow Up [https://www.linkedin.com/pulse/bnpls-second-act-why-buy-now-pay-later-needs-grow-up-2025-pf%C3%BCtze-z3tje]