Headquartered in San Francisco, installment-payment broker Affirm (NASDAQ:AFRM) is also considered a specialist in the “buy now, pay later” (BNPL) niche market. As this market becomes increasingly crowded – and a famous tech company enters into the space – AFRM stock should be monitored but not owned.

There’s nothing wrong with rooting for a small disruptor in a high-conviction sector. BNPL could be among the most promising niche markets over the coming years. However, as we’ll see, some well-known players have already entered into this space.

Among them is a company with global recognition and vast capital reserves. Affirm could have major problems trying to compete with a tech-market giant. As a result, an investment in Affirm doesn’t have a favorable risk-to-reward profile now.

What’s Happening with AFRM Stock?

Since November of last year, AFRM stock has tumbled from a 52-week high of $176.65 to less than $20. Clearly, the sellers are in control of the price action and it’s hard to know when the carnage will finally stop.

Wedbush analyst David Chiaverini initiated coverage of Affirm with an “underperform” rating and a not-too-ambitious $15 price target. We’ll discuss Chiaverini’s concerns in a moment – but first, let’s glance at Affirm’s financials.

The company’s most recently reported quarterly results present a “good news, bad news” scenario. During the first three months of 2022, Affirm grew its base of active consumers by 137% year over year to 12.7 million – not too shabby. Also, the company increased its gross merchandise volume by 73% to $3.9 billion, and its total revenue by 54% to $354.8 million.

Now, for the bad news. In that same quarter, Affirm sustained a $54.7 million net earnings loss. Sure, that’s an improvement over the $287.1 million net loss from the previous-year quarter. Still, as we’ll discover soon, Affirm is competing against companies with better-looking bottom lines.

Concern (or Lack Thereof) About the Competition

Circling back to Chiaverini, he cleverly quipped that investors should adopt a “sell now, buy later” strategy with Affirm. What’s he worried about, though?

Chiaverini’s concerns, briefly stated as they are, have weight and immediacy. “We anticipate that increasing competition from both existing BNPL players and more traditional financial institutions, along with the looming threat of a recession, could lead to slower growth for Affirm in coming quarters,” the analyst summarized.

Naturally, a recession would dent Affirm’s top and bottom lines, though this could be said about most businesses. The most notable company-specific consideration, really, is Affirm’s growing competition in BNPL.

InvestorPlace contributor Larry Ramer listed Mastercard (NYSE:MA), PayPal (NASDAQ:PYPL), American Express (NYSE:AXP), JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C) as well-established businesses that offer a BNPL option as part of their services. Those companies have much wider name recognition than Affirm does. Furthermore, Apple (NASDAQ:AAPL) recently unveiled a BNPL feature for Apple Pay purchases. The feature is reportedly called Apple Pay Later, and it involves no interest or fees.

CEO Max Levchin reportedly responded, “I don’t think there’s much concern,” and, “There’s a lot of room for growth for all involved.” Confidence is fine, but a competitive threat from the likes of Apple is, actually, a cause for “much concern.” What the investors should demand now is an airtight action plan, not casual assurance of “room for growth.”

What You Can Do Now

It’s perfectly fine to envision a strong future for BNPL. However, only the best competitors in the space are likely to thrive. Can Affirm successfully compete with PayPal, Mastercard, and American Express, not to mention universally recognized Apple?

Maybe yes, maybe no. Until Affirm offers a convincing plan of action to overcome its competitors, AFRM stock doesn’t belong in the “buy now” category.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.