Affirm Holdings (AFRM -0.91%) was one of the hottest fintech initial public offerings (IPOs) of 2021. The buy now, pay later (BNPL) services company priced its shares at $49 in January, and the stock opened at $90.90.

Affirm's stock price surged to an all-time high of $146.90 in February before concerns about its valuation, the broader sell-off in tech stocks, and an earnings miss caused its stock to tumble to the mid-$40s in May. But over the past four months, Affirm's stock rallied back to the high $80s.

Is this volatile stock worth buying again? Let's examine three reasons to buy Affirm -- as well as one reason to sell it -- to decide.

A shopper uses Affirm to make a BNPL purchase.

Image source: Affirm.

1. Affirm is a disruptive company

Affirm is trying to disrupt credit card companies, which charge retailers "swipe fees" of about 1% to 3% per purchase. Some retailers bypass those 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 they take longer to process.

Affirm's BNPL service addresses those challenges by helping retailers break larger purchases into smaller monthly payments. Affirm doesn't charge "swipe fees" like credit card companies, and the payments don't need to pass through sluggish ACH networks.

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

Affirm's growth reflects its disruptive potential. Its revenue surged 93% to $509.5 million in fiscal 2020, which ended last June, and is expected to rise 64% to $834.5 million in fiscal 2021 when it posts its fourth-quarter and full-year earnings reports on Sept. 9.

Analysts expect its revenue to rise 40% to $1.17 billion next year. Based on those expectations, Affirm trades at 20 times next year's sales -- which isn't cheap but seems reasonable relative to its growth.

2. Its partnership with Amazon

In late August, Affirm announced that Amazon (AMZN -0.68%) would integrate Affirm's BNPL services into its marketplace and enable its shoppers to split purchases of $50 or more into monthly payments.

Amazon, which serves over 300 million active customers worldwide, will gradually roll out the service over the next few months, and the partnership could greatly expand Affirm's total addressable market.

The exact terms of the deal haven't been publicized, but Amazon's support could force analysts to boost their sales estimates for Affirm -- which would make its stock look even cheaper.

3. Square and PayPal's latest moves

Square (SQ -0.96%) and PayPal (PYPL -1.68%) both recently made major moves into the BNPL space.

Square agreed to buy Afterpay (AFTP.F), an Australian BNPL leader, for $29 billion in early August and plans to integrate its network into its seller services and Cash App. PayPal, which launched a "Pay in 4" BNPL service last year, recently agreed to buy the Japanese BNPL platform Paidy for $2.7 billion. These big acquisitions are clear votes of confidence for the BNPL market's disruptive potential.

The bears might claim that Affirm will struggle to compete against Square and PayPal, but Bank of America expects the BNPL app market to expand 10 to 15 times by 2025. There should be room for all these platforms to thrive and challenge credit card companies like Visa and Mastercard.

The one reason to sell Affirm: It's pinned to Peloton

Affirm's top customer is Peloton Interactive (PTON -4.05%), a maker of high-end connected exercise bikes that benefited from gym closures during the pandemic. Peloton accounted for 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 bike.

Image source: Peloton.

That's troubling for three reasons. First, Peloton's sales growth has been decelerating since the peak of the pandemic last year. Its revenue doubled in fiscal 2020 and grew 120% in fiscal 2021, but it anticipates just 34% sales growth this year.

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

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

The bottom line

Affirm is an intriguing fintech play, but its customer concentration and widening losses prevent me from buying the stock. I'd personally prefer to buy Square or PayPal -- which are both better-diversified companies with some exposure to the BNPL market -- than Affirm.