Affirm's Transaction Engine Is Firing, But Should Investors Worry About the Price?

Affirm (AFRM) looks like a market darling right now—yet something doesn’t quite add up. The stock commands a forward 12-month price-to-sales ratio of 5.12X, towering above its own three-year average of 4.08X and significantly outpacing the industry baseline of 4.78X. When you line it up against rivals in the buy-now-pay-later (BNPL) space, the gap becomes harder to ignore: PayPal trades at just 1.64X P/S, while Block sits at 1.47X.

So here’s the tension: Affirm is posting impressive operational wins, yet the market’s pricing in expectations that seem almost impossible to miss.

The Growth Story That Justifies Enthusiasm

Let’s dig into why bulls are willing to pay that premium. Affirm’s short-term financing options—Pay in 2, Pay in 30—are driving something rare in fintech: genuine repeat behavior. In the first quarter of fiscal 2026, repeat customers accounted for 96% of all transactions. That’s not just loyalty; it suggests the platform has woven itself into consumers’ everyday spending decisions.

The company has smartly expanded into categories beyond electronics and apparel. Groceries, fuel, travel, and subscriptions now represent real volume drivers. This diversification means more moments in the day when a consumer reaches for Affirm, multiplying revenue opportunities.

On the merchant side, active merchant count surged 30% year-over-year to 419,000 as of late September 2025. That merchant momentum powered a 52.2% year-over-year jump in transactions to 41.4 million last quarter. Add in partnerships like Google Pay integration that reduce checkout friction, and you’ve got a network effect starting to take shape.

The Affirm Card is another strategic lever. The company added 500,000 cardmembers in Q1 alone, using a cash-flow underwriting model that reads real-time spending and deposit patterns instead of relying solely on traditional credit scores. This approach expands the addressable market while keeping risk in check.

Active consumer count reached 24.1 million as of September 2025, up 24% year-over-year. International expansion—particularly the Shopify partnership rolling out across France, Germany, and the Netherlands—signals that growth isn’t capped to the U.S. anymore.

The Numbers Look Strong—Too Strong?

Free cash flow jumped to $769 million over the past year, a 27.8% climb that proves the business is generating real cash, not just revenue. That’s credible. Yet Affirm trades at a price-to-free-cash-flow multiple of 31.16X, above the industry’s 27.25X—meaning you’re paying a premium even on the cash the company actually generates.

Earnings estimates are eye-popping: fiscal 2026 EPS is expected to surge 566.7% year-over-year to $1, with fiscal 2027 reaching $1.56. Revenue is projected to grow 26% and 22.8% in those respective years. Gross Merchandise Value is anticipated to exceed $47.5 billion in fiscal 2026. Affirm has beaten earnings estimates for the past four quarters with an average surprise of 129.3%.

Year-to-date, Affirm shares are up 9.8%, outpacing the industry’s 5.1% gain—while PayPal and Block have both declined and the S&P 500 gained 17.5%.

Where the Cracks Could Form

Here’s what keeps the bears awake. Competition in BNPL is getting vicious. PayPal, Block, and traditional financial institutions aren’t sitting still. Walmart’s decision to dump Affirm in favor of Klarna was a stinging reminder that merchants hold all the bargaining power in this space. Klarna’s launch of KlarnaUSD, a U.S. dollar-pegged stablecoin, ups the ante further—potentially slashing cross-border settlement costs and expanding its global footprint.

Operating expenses tell a less encouraging story. They’ve risen 25.9% (fiscal 2023), 5.4% (fiscal 2024), 12.7% (fiscal 2025), and 4.6% (Q1 fiscal 2026). The slowdown looks good on the surface, but aggressive growth investments still need margin discipline to avoid squeeezing profitability.

Then there’s the balance sheet. Affirm ended Q1 fiscal 2026 with $1.4 billion in cash (up 5.5% from prior year-end) but carried $1.8 billion in funding debt. Its long-term debt-to-capital ratio hit 70.6%—nearly five times the industry average of 13.4%. High leverage can work fine when cash generation is strong, but it’s a risk amplifier if growth slows.

The Verdict

Affirm is undeniably executing on growth. Repeat transaction rates, merchant expansion, geographic reach, and positive free cash flow are all real wins. The question is whether these wins justify a valuation that leaves almost no room for error. With elevated leverage, intensifying competition, and operating cost pressures all in the mix, the risk-reward calculation isn’t particularly compelling at current levels. The stock carries a Hold rating, reflecting a business with genuine momentum but a price tag that’s pricing in flawlessness.