Affirm Holdings, a Zacks Rank #1 (Strong Buy), is a financial technology company specializing in payment solutions that provide consumers with flexible, transparent installment loans. By partnering with a diverse range of merchants, Affirm enables customers to pay for purchases over time.

The stock is displaying relative strength and has been making a series of 52-week highs. The price movement is a sign of strength as we head further into the new year. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.

Affirm is part of the Zacks Financial Transaction Services industry group, which currently ranks in the top 33% out of more than 250 industries. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months, just as it has so far this year:

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Note the favorable metrics for this industry group below:

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Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top industries, we can dramatically improve our stock-picking success.

Company Description

Affirm Holdings operates a payment network in the United States, Canada, and internationally. Its platform includes point-of-sale payment solutions for consumers and merchants along with a consumer-focused app.

The company boasts over 337,000 active merchants covering small businesses, large enterprises, direct-to-consumer brands, and brick-and-mortar stores. Its tools help merchants to boost sales and enhance customer engagement.

Affirm recently renewed a multi-year partnership with Shopify, a global provider of internet infrastructure for commerce. The partnership helps cement Affirm’s position as the exclusive buy now, pay later provider for Shop Pay Installments in the US and Canada, with plans to enter the United Kingdom and other markets worldwide.

Earnings Trends and Future Estimates

Affirm AFRM has built up an impressive reporting history, surpassing earnings estimates in seven of the past eight quarters. The company delivered a trailing four-quarter average surprise of 84.1%.

Earlier in February, Affirm reported fiscal second-quarter earnings of $0.23 per share, a 215% surprise over the -$0.20/share consensus estimate. Revenues of $866.38 million exceeded projections by 7.7%. Higher transactions, robust repeat customer engagement and a successful holiday shopping season also boosted performance.

Analysts are bullish on the stock and have raised current-quarter earnings estimates by 30.77% in the past 60 days. The fiscal Q3 Zacks Consensus Estimate now stands at -$0.09 per share, reflecting growth of 79.1% relative to the year-ago period.

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Let’s Get Technical

This market leader has seen its stock advance more than 80% over the past year. Only stocks that are in extremely powerful uptrends are able to experience this type of outperformance. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

Image Source: StockCharts

Notice how the 200-day (red line) moving average is sloping up. The stock has been making a series of higher highs throughout the past year. With both strong fundamental and technical indicators, AFRM stock is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Affirm has recently witnessed positive revisions. As long as this trend remains intact (and AFRM continues to deliver earnings beats), the stock will likely continue its bullish run.

Bottom Line

Backed by a leading industry group and history of earnings beats, it’s not difficult to see why AFRM stock is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.

Affirm has achieved strong revenue growth through diverse income streams including merchant network fees, interest from loans, and virtual card revenues. Advanced machine learning and predictive models power the company’s cloud-based, data-driven platform.

Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. If you haven’t already done so, be sure to put AFRM on your shortlist.

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This article originally published on Zacks Investment Research (zacks.com).

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