The Afterpay Ltd (ASX: APT) share price had a rough time during May 2021. It fell over 20%.
That wasn’t even the lowest point of the decline. In the middle of the month it had fallen around 28%. Ouch.
What’s going on with the Afterpay share price?
May 2021 was actually a pretty slow month in terms of news flow for the buy now, pay later business. But it wasn’t the only business to decline. Many in the buy now, pay later sector also declined such as Zip Co Ltd (ASX: Z1P), Sezzle Inc (ASX: SZL), Splitit Ltd (ASX: SPT) and Openpay Group Ltd (ASX: OPY).
It’s hard to pinpoint exactly why share prices fall (or rise) in any month if there’s no business updates. Each trade is made up of a buyer and a seller. The seller could have exited because they’re worried about inflation and interest rates. Investors may think Afterpay isn’t worthy of such a high valuation. Perhaps some long-term investors simply wanted to take some profit off the table.
Without doing a survey of sellers, it’s hard to know. It could be a bit of everything. Momentum investing – investing in something simply because it’s going up – is a self-fulling behaviour. And it works, until it doesn’t.
At a share price of $75, Afterpay already had a huge amount of success priced in. I didn’t think there was anything that happened over the last nine months that justified doubling it to over $150.
Nevertheless, Afterpay is still delivering high levels of business growth, even if it’s not making profit yet. In the three months to 31 March 2021, Afterpay more than doubled its global underlying sales. Merchant numbers and active customer numbers continue to grow.
However, the active customer total in ANZ has slowed right down, growing by just 9% to 3.5 million, year on year. It seems the market is maturing here. The business is going to be relying on repeat usage growing in Australia to continue the growth trajectory.
Summary thoughts on Afterpay and the share price
It’ll be interesting to see where the Afterpay share price goes over the next year or two. Afterpay is likely to keep growing its underlying sales, particularly in Europe. It could just as as easily go to $100 as $80 this month.
But I’m looking for ASX growth shares with strong profit margins and less competition in the sector.