AFRM Plunges 5.7% Amid Analyst Skepticism and Institutional Exit – Is This a Buying Opportunity or a Warning Shot?

Summary
• Affirm Holdings (AFRM) tumbles 5.7% to $73.77, its worst intraday drop since June 2024.
• Evercore adds AFRM to its Tactical Underperform list, citing 'stretched valuations' and a 'less favorable risk/reward' ahead of earnings.
• Institutional ownership dips as Berkshire Capital reduces its stake by 21.3%, signaling caution in a volatile market.

Today’s sharp selloff in Affirm Holdings reflects a confluence of analyst skepticism, institutional exits, and valuation concerns. The stock has swung between $73.35 and $77.21, a 5.7% range, as investors grapple with the company’s stretched multiples and competitive pressures in the buy-now-pay-later (BNPL) sector. With earnings on the horizon and a crowded payments landscape, the question looms: is this a buying opportunity or a warning shot?

Analyst Doubt and Institutional Exit Weigh on AFRM
The selloff is driven by a perfect storm of bearish catalysts. Evercore ISI’s addition of AFRM to its Tactical Underperform list has amplified investor anxiety, with analysts warning that the stock’s 115% surge since April has left it vulnerable to earnings volatility. Meanwhile, Berkshire Capital’s 21.3% reduction in its stake—now 3.0% of its portfolio—signals institutional caution. Compounding these pressures, AFRM’s forward P/S ratio of 6.26X dwarfs peers like PayPal (1.94X) and Block (1.81X), raising questions about whether its valuation is justified by fundamentals. The stock’s 44.25X P/FCF multiple further underscores its premium pricing, deterring value-oriented investors.

Payment Processing Sector Mixed as AFRM Underperforms
The Payment Processing & Clearing sector is broadly mixed, with PayPal (PYPL) down 0.44% and AFRM’s -4.3% move diverging sharply from the group. While PYPL’s modest decline reflects broader macroeconomic concerns, AFRM’s selloff is more idiosyncratic, tied to its valuation and competitive risks. The sector’s recent news—such as Electronic Payments’ Handpoint acquisition—highlights innovation in embedded finance, but AFRM’s struggles with merchant retention (e.g., Walmart’s shift to Klarna) and rising operating expenses (up 7.4% in Q3 FY2025) set it apart as a laggard.

Options and ETF Strategy Amid Volatility
• MACD: 3.27 (above signal line 2.86), RSI: 66.45 (neutral), Bollinger Bands: $61.77–$82.40 (current price near lower band).
• 200D MA: $59.31 (below), 30D MA: $70.47 (near).

AFRM’s technicals suggest a short-term bearish bias, with the 200D MA acting as a critical support level. The RSI’s 66.45 reading indicates moderate momentum, but the stock’s proximity to the lower Bollinger Band signals oversold conditions. For options, two contracts stand out:

• AFRM20250829P75 (Put, $75 strike, 8/29 expiry):
- IV: 96.04% (high volatility), Leverage: 14.61%, Delta: -0.4525 (moderate sensitivity), Theta: -0.3671 (rapid time decay), Gamma: 0.0316 (high sensitivity to price swings), Turnover: 97,436.
• AFRM20250829C75 (Call, $75 strike, 8/29 expiry):
- IV: 96.04% (high volatility), Leverage: 14.61%, Delta: 0.5435 (moderate sensitivity), Theta: -0.3671 (rapid time decay), Gamma: 0.0316 (high sensitivity to price swings), Turnover: 97,436.

Action: Aggressive bulls may consider AFRM20250829C75 into a bounce above $75, while bears should monitor the 200D MA ($59.31) for a potential breakdown. Under a 5% downside scenario (targeting $70.08), the put option’s payoff would be $4.92, while the call’s payoff would be $0.00, highlighting the put’s asymmetric potential.

Backtest Affirm Holdings Stock Performance
The backtest of AFRM's performance after a -6% intraday plunge shows favorable short-to-medium-term gains. The 3-Day win rate is 51.40%, the 10-Day win rate is 51.75%, and the 30-Day win rate is 52.81%. Although the maximum return during the backtest period is only 10.98% over 30 days, the overall trend suggests the ETF can recover from such significant dips.

AFRM at Crossroads – Watch for Earnings Clarity and Institutional Sentiment Shifts
AFRM’s near-term trajectory hinges on its August 28 earnings report and whether management can address valuation concerns with robust guidance. The stock’s 5.7% drop today underscores the fragility of its premium pricing, but its 45.6% YoY transaction growth and expanding partnerships (e.g., Costco, Google Pay) offer a counter-narrative. Investors should watch for a breakdown below the 200D MA ($59.31) or a rebound above the 30D MA ($70.47). Meanwhile, sector leader PayPal (PYPL, -0.44%) remains a safer bet for those seeking exposure to the payments space. Act now: Position for AFRM’s earnings-driven volatility or pivot to PYPL’s steadier growth.