PreMarket Prep: Sean Udall Talks Affirm Holdings Fundamentals As Stock Spirals Down

With the insane price action in Affirm Holdings Inc AFRM over the last few days, investors could be distracted from the actual fundamentals of the company.

Sean Udall, the tech stock strategist and the publisher of The Udall Report, posed this question Friday on PreMarket Prep: “What in the report was bad?”

Affirm's Q2 Report: Udall was unfazed by the EPS miss of 57 cents against an estimate of a 34-cent-per-share loss and said he was encouraged by the sales beat, $361 million vs. a $328.8-million estimate. 

He did not mind the conservative guidance and said it will temper expectations for the third quarter. 

The company sees third-quarter sales of $325 million-$335 million vs. a $330.07-million estimate and FY22 sales of $1.29 billion to $1.31 billion vs. a $1.28-billion estimate.

The Real Kicker: Udall, who listened to the company’s conference call, noted two key items that may be overlooked by investors.

The first one is that the company’s deal with Amazon.com, Inc. AMZN from September was only active for one half of the quarter. As a result, next quarter's results will include all three months of proceeds from the deal, which could be substantial.

More importantly, Affirm reported impressive customer metrics for active merchants of 168,000 (vs. 8,000 in the fourth quarter of 2020) and active customers of 11.2 million, up 150% year-over-year. 

A Potential 'Raid Reverse Trade': From a shorter-term trading perspective, Udall was hoping for what he calls a “reverse raid trade.”

That is when there is a preponderance of sellers off the open and the issue flushes out, perhaps at the former low of the move ($48.17), and sharply reverses course for a long trade leaning on the initial low for a protective stop.

However, that did not take place, Instead, the issue opened much lower Friday at $53.06, then rebounded to $54.49 before plummeting. 

It has continued to make new lows for the session. The low of $46.60 as of 2:15 p.m. EST coincides with its all-time from last April at $46.50. The stock ultimately closed at $46.55, down 20.67%. 

Affirm's Longer-Term Perspective: Since the issue did not bottom early in the session at the former low of the move ($48.17), Udall said he may wait until the issue can stabilize in the $48-$50 area before attempting to build a long position. 

The discussion with Sean Udall on the issue from Friday’s broadcast can be found here: 

Photo courtesy of Affirm.