Is it worth buying Afterpay Touch Group Ltd (ASX: APT) shares with the share price currently sitting above $20?
Afterpay Touch is the owner of the popular “buy now, pay later” app. As of 2018, Afterpay had over 2.5 million registered users world-wide, making it one of Australia’s true technology success stories.
Is The Afterpay Share Price A Buy?
The Afterpay share price has risen by 71% since the start of 2019, which is a strong recovery for the buy now, pay later business. It has gone from $21 last year down to $10.60 and back up to $20.55.
Not only the company suffer during the market sell-off in the last quarter of the year, but it also appeared to be under threat from the Senate inquiry into the buy now, pay later industry.
However, as we reported here, Afterpay adequetely defended itself which led to the Senate ultimately praising Afterpay for bringing additional competition to the sector.
So with that potentially large threat out of the way, Afterpay’s share price grew, along with reporting impressive progress in its half year result.
If you didn’t see it, Afterpay reported that its total income grew by 85% to $112.3 million. Underlying sales processed through the Afterpay system grew by 147% to $2.3 billion.
At 31 December 2018 Afterpay had reached 3.1 million active customers which was 118% higher than the prior year.
Afterpay is managing to achieve this incredible growth rate whilst decreasing its gross losses to 1.1% of underlying sales, down from 1.6% in the prior corresponding period. Afterpay also said that late fee income as a percentage of total Afterpay’s statutory income was 17.6%, substantially reduced from the 22.5% reported 12 months prior.
The key to justifying Afterpay’s current valuation is the potential growth overseas. By the end of this month Afterpay thinks it will have over 1 million active customers and 2,000 active merchants in the US. This is a good achievement for how little time the company has been operating there. The USA is a much bigger opportunity than the Australian market.
The UK launch is expected in the next few months. Urban Outfitters has agreed to be the launch partner for the UK market.
By FY22 Afterpay said it is targeting $20 billion in gross merchandise volume, which would be impressive if it achieves that. The UK and USA are not the only countries Afterpay could expand to. Canada would seem like an obvious next step.
At the current share price, I could not see myself investing in Afterpay shares. However, some growth-focused investors see an opportunity at this price if Afterpay delivers on its potential.
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