Affirm's RS Rating Breakthrough: A Technical Catalyst Igniting a Fundamental Revaluation?

Clyde MorganTuesday, May 13, 2025 3:54 pm ET
2min read

The Relative Strength (RS) Rating of Affirm Holdings (AFRM) surged past 90 in early May 2025, marking a pivotal technical inflection point for the fintech leader. While the stock’s flat earnings per share (EPS) growth has drawn skepticism, the confluence of strategic partnerships, a BofA profit outlook upgrade, and a looming earnings report positions AFRM for a potential breakout. This analysis dissects how technical momentum is aligning with fundamental catalysts, creating a compelling risk-reward setup for investors.

The RS Rating Surge: A Technical Inflection Point

Affirm’s RS Rating—a proprietary metric from Investor’s Business Daily (IBD) measuring 52-week price performance—jumped from 86 to 92 on May 8, 2025, after its Q3 earnings release. This places AFRM in the top 90 percentile of stocks, a “technical elite” category historically signaling stocks poised for outsized gains.

The surge isn’t arbitrary. Affirm’s 36% revenue growth (to $783M) and its 115% GMV rise for the Affirm Card highlighted its ability to scale partnerships with Apple, Amazon, and Shopify. These relationships, which now power 44% year-over-year growth in 0% interest loans, are key drivers of liquidity and customer acquisition—a technical tailwind reflected in its RS rating.

IBD’s caution—“not an ideal time to buy”—is understandable. The stock trades at $53.78, below its $67.40 target, but lacks a confirmed breakout pattern. However, the RS rating’s jump to 92 suggests the setup is forming.

Fundamental Catalysts: Sales Growth, Partnerships, and Profitability Clarity

While EPS growth stalled at 0% in Q3, Affirm’s top-line expansion and strategic moves justify optimism:
1. Apple/Amazon Partnerships: Affirm’s integration into Apple’s Buy Now Pay Later (BNPL) ecosystem and its Amazon Prime membership deals are accelerating GMV. These partnerships now account for 25% of total GMV, up from 15% a year ago.
2. BofA’s Profit Outlook Upgrade: Bank of America upgraded Affirm’s fiscal 2026 EPS estimates by 15%, citing lower credit losses (now <1% on core loans) and the Affirm Card’s pipeline for higher-margin revenue.
3. Path to Profitability: Management reaffirmed its goal to achieve GAAP profitability by Q4 2025, with operating margins improving to -12% (vs. -25% in Q2).

These catalysts address the “growth without profit” critique, aligning with the RS rating’s technical bullishness.

Valuation and the $67.40 Target: Why the Discount Matters Now

Despite IBD’s F-rated valuation (reflecting premium pricing), Affirm’s $67.40 price target (implied 25% upside) is underpinned by:
- A P/S ratio of 2.1x, below peers like PayPal (4.8x) and Stripe (6.2x) despite faster GMV growth.
- $2.2B in cash and a $600M credit facility, providing liquidity to weather macro uncertainty.

The disconnect between the RS rating’s strength and the valuation discount suggests a mispricing. A successful Q4 earnings report—which could highlight further margin improvements and partnership traction—could bridge this gap.

Risks and the IBD Caution: Navigating the Crossroads

  • EPS Growth Concerns: Flat EPS in Q3 raises execution risks. A miss on Q4 EPS estimates could dampen momentum.
  • Market Sentiment: The fintech sector faces headwinds from rising interest rates and regulatory scrutiny.
  • Technical Setup: Investors must await a confirmed breakout above $55 resistance before scaling into positions.

Conclusion: Position for the Breakout—But Watch the Chart

Affirm’s RS rating surge to 92 is more than a technical fluke. It reflects market recognition of its strategic partnerships, operational leverage, and valuation discount. While IBD’s caution is valid, the setup is clear:
- Target Entry: Wait for a breakout above $55, confirmed by volume and RSI >60.
- Risk/Reward: A $67.40 target (25% upside) with a $48 stop (14% risk) offers compelling asymmetry.

The stock’s confluence of technical momentum and fundamental catalysts suggests the setup for a multi-month rally is in place. For aggressive investors, nibbling at $53 while monitoring the chart could yield outsized returns.

Act now—but confirm with the chart.