Investors are probably keeping a close eye on Affirm Holdings, Inc. (AFRM Quick QuoteAFRM - Free Report) as the company prepares to announce its third-quarter fiscal 2024 results on May 8, prior to the market opening. Some investors are deliberating whether to purchase shares of this prominent payment network before its earnings report or await a potentially more advantageous entry point.

Why is It Attracting Investor Interests?

As a prominent player in the buy now, pay later (BNPL) sector, AFRM holds a distinctive advantage to benefit from the thriving industry. According to a report by Adobe Analytics, BNPL services drove online spending in November 2023, highlighting their significance in sustaining consumer spending resilience. AFRM is poised to capitalize on this momentum in the foreseeable future.

Additionally, strategic partnerships with well-established companies such as Evolve, Walmart, and Liberty Travel are anticipated to enhance its market presence further. The company’s improving free cash flow situation, now characterized by sustainable generation of free cash flow, is a major positive. At this rate, it can achieve full-year profitability on an adjusted operating income basis in the near future.

Affirm's consistent and disciplined performance in recent quarters has emerged as a catalyst for its network growth. The company continues to benefit from a high-interest environment, which has significantly contributed to its positive top-line performance. Rising active merchant numbers and Gross Merchandise Volume will continue to support its growth trajectory.

But All is Not Well

The growth potential in the BNPL space is bringing more players into the market, boosting competition. For example, Walmart Inc.’s (WMT Quick QuoteWMT - Free Report) majority-owned fintech startup, One, had reportedly started offering BNPL services for big purchases from last month. The move from the multinational retail giant was big enough to have a negative effect on AFRM shares.

During the year-to-date period, AFRM stock experienced a decline of 26.3%, outpacing the industry's 16.4% decrease, while the S&P 500 Index recorded growth of 7.8%. Factors such as limited consumer loan demand in the secondary market and elevated funding costs attributed to high interest rates have the potential to impact AFRM's growth trajectory. Additionally, the company's forward 12-month price-to-sales ratio, currently standing at 4.19X, remains significantly higher than the industry average of 1.30X. This higher valuation may pose a barrier for investors considering ownership.

The estimates for the upcoming third-quarter fiscal 2024 results are also not all positive. Although the Zacks Consensus Estimate for the company’s revenues is pegged at $548.1 million, indicating a 43.9% rise from the year-ago reported figure, the same for the bottom line is pegged at a loss of 70 cents per share, 1.5% wider than the year-ago loss. The consensus mark for earnings did not witness any movement in the past week.

In the past four quarters, AFRM beat earnings estimates twice and missed on the other occasions, the negative surprise being 26.5%. Our proven model does not conclusively predict an earnings beat for it this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here.

The company has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate currently stands at a loss of 70 cents per share, in line with the Zacks Consensus Estimate. It carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Conclusion

While Affirm is well positioned to capitalize from resilient consumer spending and expected to witness continuous expansion in volumes, its unfavorable valuation, rising competition in the market and a lower likelihood of surpassing earnings estimates suggest that investors may want to wait for a more favorable entry point.

How Did Other Stocks Fare?

Here are some companies from the broader Business Services space that have already reported earnings this season.

Visa Inc. (V Quick QuoteV - Free Report) reported strong second-quarter fiscal 2024 results, which benefited from expanding payments volume, cross-border volume and processed transactions. Its earnings per share of $2.51 outpaced the Zacks Consensus Estimate of $2.43 by 3.3%. The bottom line rose 20% year over year.

Despite challenges, such as a high interest rate environment, more than average inflation level and concerns about the economic slowdown, resilient consumer spending and strong e-commerce trends supported Visa's performance. However, higher operating expenses and client incentives partially tempered the upside.

The Western Union Company (WU Quick QuoteWU - Free Report) posted robust first-quarter 2024 results, driven by the Branded Digital business' resilience, growth in transactions, solid Consumer Money Transfer business performance and stabilization of the retail business. However, increased expenses tempered some of the gains.

It announced first-quarter 2024 adjusted earnings per share of 45 cents, which beat the Zacks Consensus Estimate by 12.5%. Western Union’s bottom line rose nearly 5% year over year.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.