Affirm holdings (NASDAQ: AFRM) was one of the hottest fintech initial public offerings (IPOs) of 2021. The buy now, pay later (BNPL) services company valued its shares at $ 49 in January and the stock opened at 90 , $ 90.

Affirm’s stock price hit an all-time high of $ 146.90 in February before concerns about its valuation, the wider sell-off of tech stocks and a shortfall caused its stock to fall to the mid-$ 40 mark in may. But in the past four months, Affirm stock has climbed back to the top of $ 80.

Is this volatile stock worth buying back? Let’s look at three reasons to buy Affirm – along with one reason to sell it – to decide.

Image source: Affirm.

1. Affirm is a disruptive business

Affirm is trying to disrupt credit card companies, which charge retailers a “sweep fee” of around 1% to 3% per purchase. Some retailers bypass these fees with their own private label payment cards, which use automated clearinghouses to facilitate bank-to-bank debit and credit payments. ACH transfers are much cheaper than credit card payments, but take longer to process.

Affirm’s BNPL service addresses these challenges by helping retailers break down larger purchases into smaller monthly payments. Affirm doesn’t charge “sweep fees” like credit card companies, and payments don’t have to go through slow ACH networks.

The Affirm platform facilitates interest-free and interest-bearing loans, but many of its business partners offer interest-free payment plans to discourage the use of traditional credit cards. Its mobile app allows consumers to manage these payments, discover other Affirm retailers and open a high-yield savings account, which could threaten traditional banks.

Affirm’s growth reflects its potential for disruption. Its revenue jumped 93% to $ 509.5 million in fiscal 2020, which ended last June, and is expected to increase 64% to $ 834.5 million in the year. in fiscal 2021 when it releases its fourth quarter and full year earnings reports on September 9.

Analysts expect its revenue to rise 40% to $ 1.17 billion next year. Based on these expectations, Affirm is trading at 20x next year’s sales, which is not cheap but looks reasonable for its growth.

2. Its partnership with Amazon

At the end of August, Affirm announced that Amazon (NASDAQ: AMZN) would integrate Affirm’s BNPL services into its marketplace and allow its buyers to split purchases of $ 50 or more into monthly payments.

Amazon, which serves more than 300 million active customers globally, will gradually roll out the service over the coming months, and the partnership could significantly expand Affirm’s total addressable market.

The exact terms of the deal have not been made public, but Amazon’s backing could force analysts to increase their sales estimates for Affirm, making its stock even cheaper.

3. The latest movements of Square and PayPal

Square (NYSE: SQ) and Pay Pal (NASDAQ: PYPL) both have recently made major moves in the BNPL space.

Square agreed to buy After payment (OTC: AFTP.F), Australian leader of BNPL, for $ 29 billion in early August and plans to integrate its network into its vendor and Cash App services. PayPal, which launched a BNPL “Pay in 4” service last year, recently agreed to buy the Japanese BNPL platform Paidy for $ 2.7 billion. These large acquisitions are clear votes of confidence for the disruptive potential of the BNPL market.

The Bears might claim that Affirm will struggle to compete with Square and PayPal, but Bank of America expects the BNPL application market to grow 10-15 times by 2025. There should be room for all of these platforms to thrive and challenge credit card companies like Visa and MasterCard.

The only reason to sell Affirm: he’s pinned to Peloton

Affirm’s first customer is Interactive Platoon (NASDAQ: PTON), a manufacturer of high-end connected exercise bikes that benefited from gym closures during the pandemic. Peloton represented 29% of Affirm’s revenue in fiscal 2020 and 31% of its revenue in the first nine months of fiscal 2021.

A person uses a Peloton bicycle.

Image source: Peloton.

This is troubling for three reasons. First, Peloton’s sales growth has slowed since the pandemic peaked last year. Its revenue doubled in fiscal 2020 and increased by 120% in fiscal 2021, but it expects sales growth of just 34% this year.

Second, Peloton recalled its Tread and Tread + treadmills earlier this year due to safety concerns, which tarnished its brand and resulted in weaker-than-expected sales growth in the fourth quarter. Finally, Peloton recently lowered its bike prices to cope with a growing number of cheaper competitors.

The Bulls might argue that Affirm’s new partnership with Amazon could offset Peloton’s decline, but it’s too early to make that call. It’s unclear in how many regions Amazon will launch Affirm, and Amazon may still partner with Affirm’s BNPL competitors in other markets.

The bottom line

Affirm is an intriguing fintech game, but its concentration of clients and growing losses keep me from buying the stock. Personally, I would rather buy Square or PayPal – both of which are better diversified companies with some exposure to the BNPL market – than Affirm.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.