Goldman Sachs says this beaten-down BNPL stock is primed to rally 40%

Affirm ‘s best-in-class fundamentals give it a leg up above competitors, according to Goldman Sachs. Analyst Will Nance assumed coverage of the buy now, pay later company with a buy rating. His price target of $42 implies upside of more than 40% from Friday’s close. Shares of Affirm have plunged 35% this year. However, Nance expects “strong growth rates to support the company’s premium valuation in the intermediate term.” AFRM YTD mountain AFRM YTD chart As a catalyst, the analyst pointed to the growth of buy now, pay later solutions, especially in the U.S. — Affirm’s primary market — which is still “earlier in the journey.” These platforms continue to take a significant share of retail spending, which could further boost Affirm’s share gains, Nance wrote. Nance also emphasized Affirm’s differentiated approach to underwriting as a company strength, especially versus its peers, giving it a leg up when it comes to managing credit outcomes. “AFRM’s credit losses in the 7% range are comparable with subprime losses at incumbents, but have been much more stable recently while the industry has seen credit normalization in the wake of the pandemic,” the analyst said. “We view this as evidence of AFRM’s differentiated underwriting model and the ability to widen the funnel as a function of its transaction level underwriting and greater pricing flexibility than traditional lenders.” Nance also highlighted Affirm’s record when it comes to managing its revenue less transaction costs margins. Furthermore, a variety of opportunities could accelerate the company’s growth. Such opportunities include is its new Debit+ card, recently announced partnership with Apple Pay and platform partnerships with Shopify and Amazon.