Affirm (NASDAQ: AFRM) stock price has surged by over 155% in the past 12 months, beating the tech-heavy Nasdaq 100 index. The shares have dropped by more than 10% this year as some investors start to take profits.
Credit card delinquencies are risingA likely catalyst for Affirm is that credit card delinquency rates are soaring as interest rates remain restrictive. Data shows that these delinquencies jumped by over 50% in 2023, the highest point since 2008.
This is a big issue since Americans are deeply in debt. Total credit card debt surged by over $50 billion in the fourth quarter to $1.13 trillion. Auto loan delinquencies have also increased in the past few months.
The average credit card interest rate has risen to over 18%, making them unaffordable to most people. In the automobile industry, the average rate for new cars stood at 7.03% while for used cars was 11.35%.
BREAKING: Credit card debt delinquency rates surged more than 50% in 2023 to their highest level since 2008, according to the NY Fed.
Last quarter alone, total credit card debt in the US jumped $50 billion to a record $1.13 trillion.
Auto loan delinquency rates also surged… pic.twitter.com/hfLiQvjxZ5
The soaring credit card debt partly explains why retail sales in the US have held steady in the past few months. The other reason is that US wage growth has been quite strong as companies compete for workers.
Therefore, the rising delinquencies in the credit card market is likely a good thing for Affirm, one of the biggest companies in the Buy Now, Pay Later (BNPL) industry. For one, its core business is that it lets people shop on credit and pay the funds without paying interest.
Affirm makes money by taking a commission from the sellers. It also has an interest-based service where people pay between 0% and 36%, but most prefer the zero-interest option. This explains why the company has become popular among customers.
To be clear. Affirm is also seeing an increase in delinquency rates. However, its most recent results showed that the company’s rates were about 2.6% in the last quarter. That was a better figure compared to other companies like SoFi and Upstart which have a rate of over 6%.
I believe that Affirm – and other BNPL companies – will likely continue to do well in the coming years because their lower interest rates than credit cards. Indeed, a recent report estimated that the BNPL market size stood at $23.2 billion in 2022 and that it will have a CAGR of 22% and hit $122.1 billion by 2030.
Affirm stands to benefit from this growth because of the partnerships it has made with companies like Amazon, Target, and Target. The only main challenges along the way will be regulations and increased competition from the likes of Zip and Afterpay.
Affirm stock price forecast
The daily chart shows that the AFRM stock price pulled back after rising to a high of $52.54 in January. This retreat has seen it form a bullish flag pattern, one of the most popular positive patterns in the market.
Most importantly, the decline was part of the fourth wave of the Elliot Wave pattern. In most cases, the fourth section is followed by a strong rebound as it enters the final part of the impulse wave. Therefore, the outlook for the stock is extremely bullish ahead of its earnings on Thursday.
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