The Afterpay Touch Group Ltd (ASX: APT) share price has gone ballistic since June 2017, rising from less than $3 to over $20.
Afterpay Touch is the owner of the popular “buy now, pay later” app. As of early 2019, Afterpay had 3.5 million registered users worldwide, making it one of Australia’s true technology success stories.
Most traditional ‘value investors’ would baulk at the idea of buying Afterpay shares at today’s valuation because if you use traditional metrics like price-earnings (P/E) its shares look ridiculously expensive.
However, if you take a more forward-looking ‘growth’ approach to your valuation and investing, you may believe that it’ll be able to grow into its valuation and then some.
Potential Both Ways
One of the biggest pulls to Afterpay shares is the potential for overseas expansion. Already Afterpay has created a substantial ‘beachhead’ in the US market. In little over 11 months, Afterpay had added 1 million registered users with 2,000 retailers/merchants using its payment services. Away from the US, Europe and other areas of the world are growth markets too.
Aside from geographical expansion, Afterpay is also becoming a player in online referrals and advertising for the retailers it services with its credit payment options. Given the amount of traffic going to its website and app, plus its accelerating user base, Afterpay is becoming a key source of traffic for retailers. Just look to Google as an example of where this might take its business.
All-in-all Afterpay has loads of optionality.
Buy, Hold Or Sell
At the end of the day, it comes back to what type of investor you are. If you’re looking for a high-risk/high-reward type investment and you are happy to stomach the large ups and downs of share prices, Afterpay could be worthy of a small investment in a diverse portfolio.
According to The Wall Street Journal five of the six analysts surveyed have a “buy” rating on Afterpay shares.
If you’re less comfortable with the valuation or capital needs of Afterpay’s business, there may be a case for a “hold” rating. Afterpay could turn out to be a flop and fail to justify its current valuation. However, one thing that seems to be a given for now is that few analysts are willing to slap a ‘sell’ rating on Afterpay shares.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).