Shares of Affirm Holdings, Inc. (AFRM Quick QuoteAFRM - Free Report) have surged 145.7% over the past year, significantly outperforming the broader market and peers. By comparison, the industry rose 35.1%, and the S&P 500 gained 12.3%. Affirm’s performance has outshined other buy now, pay later (BNPL) players such as PayPal Holdings, Inc. (PYPL Quick QuotePYPL - Free Report) and Block, Inc. (XYZ Quick QuoteXYZ - Free Report) .

The rally has been driven by product innovation, strategic execution, and a growing base of both consumers and merchants.

Price Performance – AFRM, PYPL, XYZ, Industry & S&P 500

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But with such a sharp run-up, many investors are now wondering: Is there more room to run, or is a pullback looming? Let us evaluate and determine the next move for investors.

Focus on Repeat Customers Strengthens AFRM’s Core Business

Affirm is increasingly focused on driving repeat usage, a more cost-effective and sustainable growth lever than customer acquisition. The company’s short-term payment plans, such as "Pay in 2" and "Pay in 30," foster habitual use by encouraging quicker repurchase behavior. These products not only improve conversion rates but also boost customer lifetime value and retention, helping Affirm build a competitive moat.

In the third quarter of fiscal 2025, a striking 94% of transactions came from repeat customers, reflecting the effectiveness of this strategy. Wallet integrations with Apple Pay and Google Pay further enhance ease of use across platforms, fueling daily engagement.

To further entrench itself into everyday spending, Affirm is broadening its merchant mix to include essentials like food, travel, fuel and subscriptions. Recent partnerships with Costco, World Market and others reflect this pivot toward high-frequency, small-ticket categories. Total transactions surged 45.6% year over year to 31.3 million in the last reported quarter.

Expanding Affirm’s Footprint Beyond North America

Affirm is actively scaling its operations internationally. Following its entry into the U.K., the company has announced plans to expand into France, Germany and the Netherlands through a strategic partnership with Shopify. With a merchant network that now spans over 358,000 partners, this international push could open up substantial new revenue channels.

In parallel, Affirm is eyeing high-growth verticals like gaming. Its recent collaboration with Xsolla will allow the company to tap into a younger, tech-savvy user base, extending its reach beyond traditional retail and travel segments. Further expansion into Canada and the U.K. is also on the horizon.

AFRM’s Multiple Growth Levers in Play

Affirm’s model delivers clear value to both merchants and consumers. For businesses, it reduces cart abandonment and lifts average order value, while offering consumers transparent and flexible payment options, including 0% APR installment plans. These 0% APR options rose 44% year over year in the latest quarter and represented 13% of total GMV.

Beyond core BNPL, Affirm is investing in debit solutions and B2B tools, broadening its product ecosystem. These innovations aim to increase transaction frequency, deepen customer relationships, and enhance stickiness across its platform.

Favorable Earnings Estimates for AFRM

The Zacks Consensus Estimate for Affirm’s fiscal 2025 earnings suggests a 101.8% year-over-year improvement to 3 cents per share, while fiscal 2026 earnings are expected to soar to 73 cents. Revenue projections are also strong, with fiscal 2025 and 2026 expected to grow 37% and 23%, respectively. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

The company anticipates fiscal Q4 Gross Merchandise Value between $9.4-$9.7 billion. Affirm has beaten earnings estimates for four consecutive quarters, with an average surprise of 102.2%.

AFRM’s Valuation: Still Attractive?

Affirm is trading at 5.68X forward 12-month sales, just below the industry average of 5.85X, but well above its three-year median of 3.59X. Compared to peers, PayPal (2.21X) and Block (1.61X) appear cheaper on this metric. However, investors are clearly pricing in Affirm’s stronger growth profile and expanding market share.

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AFRM’s Key Risks to Watch

Despite its upside, Affirm carries notable risks. As of March 31, 2025, the company held $1.9 billion in funding debt, translating to a long-term debt-to-capital ratio of 71.8%, much higher than the industry average of 13.4%. Sustained profitability will be crucial in reassuring investors about its ability to service these obligations.

Operating expenses have been rising steadily, up 76.6% in fiscal 2022, 25.9% in fiscal 2023 and 5.4% in fiscal 2024. In the fiscal third quarter alone, expenses increased 7.4%. While ongoing investments are essential for growth, tighter cost discipline will be necessary to protect margins.

The competitive landscape is intensifying. Legacy players like PayPal, Block, and Klarna, along with traditional financial institutions, are aggressively expanding in the BNPL arena. Walmart’s decision to switch from Affirm to Klarna underscores the challenge of retaining large merchants in a crowded space.

Hold AFRM for Now

Affirm’s explosive stock performance reflects strong execution across product innovation, user engagement, and market expansion. Its strategy of driving repeat usage, entering high-frequency spending categories and scaling globally presents a compelling long-term vision.

However, rising operating costs, a highly competitive BNPL landscape and elevated debt levels introduce risks that cannot be ignored, especially at current valuation levels. Momentum is strong, but conviction still requires proof.

With a Zacks Rank #3 (Hold), Affirm may be best suited for watchlists rather than fresh buys. Investors should wait for clearer signs of consistent profitability and margin discipline before adding or increasing positions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.