Goldman Sachs Is Bullish. Here Are 3 Reasons AFRM Stock Could Climb 69%.

Affirm Holdings (AFRM) is a fintech company that lets consumers buy products and services now and pay for them over time through its Buy Now, Pay Later (BNPL) platform. Recently, it reported another strong quarter, prompting Goldman Sachs (GS) to increase the stock's target price from $106 to $115. The bank is optimistic, citing robust growth in Affirm's interest-bearing loans, the continuous development of Affirm Card, the Shopify relationship in Australia, and accelerating volumes at Amazon.

AFRM stock is down 7.9% year-to-date, but the price target implies a potential upside of 69%. However, it will need more than one robust quarter for the stock to hit this bullish target.

It's not just Goldman Sachs that is bullish about Affirm. Recently, many other firms, including Truist Financial, Cantor Fitzgerald, J.P. Morgan (JPM), Needham, Barclays (BCS), and Bank of America (BAC), among others, also increased the target price for the stock. While the stock's mean target price is $99.48, the high end of $124 implies the stock can climb by almost 82% from current levels. Affirm's fiscal fourth-quarter results gave enough reason to be so strongly optimistic.

1. The Interest-bearing Business Is Becoming a Bigger Growth Engine

Affirm is making more business from loans that are generating interest income. The company is not just focused on processing more transactions but is also increasing the amount of money it earns from financing these loans. Notably, 80% of its direct-to-consumer product loans now carry interest. The rapid growth of the Affirm Card is helping drive this shift because Card users can borrow through the platform for their purchases rather than utilizing Affirm at the merchant's checkout.

In its fiscal fourth quarter, interest income climbed 30% year over year (YOY), while the average amount of loans Affirm retained for investment increased by 33%. Similarly, the company is also making money by selling loans to investors. Gains on sales of loans jumped 41%, thanks to a 26% increase in the number of loans sold and better pricing on those sales.

Basically, as Affirm's loan book grows, it has two ways of making money. Affirm is expanding its higher-value lending offerings while maintaining disciplined funding and credit performance, which is resulting in increasing earnings. Net income climbed to $1.6 billion from $69.2 million in the year-ago quarter.