Here’s Why Bireme Capital Covered its Short Position in Affirm Holdings (AFRM)

Investment management company Bireme Capital recently released its second quarter 2022 investor letter. A copy of the same can be downloaded here. The fund outperformed during the quarter and returned -1.4% net of fees compared to 16.1% for the S&P 500 Index. The outperformance was primarily due to gains made on the fund’s short positions, which contributed 16.9% to the portfolio. You can check the top 5 holdings of the fund to know its best picks in 2022.

Bireme Capital discussed stocks like Affirm Holdings, Inc. (NASDAQ:AFRM) in the second quarter investor letter. Headquartered in San Francisco, California, Affirm Holdings, Inc. (NASDAQ:AFRM) is a financial technology company. On August 22, 2022, Affirm Holdings, Inc. (NASDAQ:AFRM) stock closed at $29.49 per share. One-month return of Affirm Holdings, Inc. (NASDAQ:AFRM) rose to 27.66% and its shares lost 56.97% of their value over the last 52 weeks. Affirm Holdings, Inc. (AFRM) has a market capitalization of $8.447 billion.

Here is what Bireme Capital specifically said about Affirm Holdings, Inc. (NASDAQ:AFRM):

“We recently covered our short position in Affirm Holdings, Inc. (NASDAQ:AFRM) after a rapid decline brought the share price to ~$30 – down from our entry point above $100 – in only 7 months. We discussed Affirm in our Q4 letter, saying the following:

Affirm is a “Buy Now, Pay Later” (BNPL) company founded by former PayPal CTO and cofounder Max Levchin. They provide installment loans to consumers, partnering with retail companies looking to drive higher sales. They have two primary products: a zero-fee installment loan for consumers with the best credit scores, and a more traditional product with 20%+ interest rates for subprime borrowers. Their stated plan is to disrupt the credit industry with more transparent, lower-fee loans. At a roughly $28b market cap at the start of 2022, AFRM stock was priced at more than 20x trailing sales, a steep price for a money-losing lender. While their early lead in online BNPL transactions and partnerships with fast-growing retailers like Peloton has fueled significant historical growth, a wave of competition has arrived… While the stock has already fallen sharply from where we initiated our short position, we think it could fall another ~40% to trade at 8x FY2022 sales.

Interestingly, not much has changed about Affirm’s business from when it sported a $28b market cap. Estimates for 2022 sales have been inching up, from $1.25b at the start of the year to $1.35b today. And analysts estimate that the company will lose about $150m of EBITDA this year, slightly better than estimates in January. Rather than a story of deteriorating business fundamentals, this was a story of market participants simply deciding that a fast-growing, money-losing subprime lender – even a disruptive one – with around $1b of revenues should not be worth twenty-eight billion dollars. We think the current valuation is much more reasonable, and we do believe that Affirm will eventually generate profits from its lending platform, so we covered our short position.”

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Inc Affirm Holdings, Inc. (NASDAQ:AFRM) is not on the list of  30 Most Popular Stocks Among Hedge Funds. As per our database, Affirm Holdings, Inc. (NASDAQ:AFRM) was held by 27 hedge fund portfolios at the end of the first quarter, which was 29 in the previous quarter.

We discussed Affirm Holdings, Inc. (NASDAQ:AFRM) in another article and shared the list of fintech stocks that are getting hammered amid the recession. You can check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

Disclosure: None. This article is originally published at Insider Monkey.