Is it just me or does every Tom, Dick and Harry own Afterpay Touch Group Ltd (ASX: APT) shares in 2019?
Just look at this beauty flying higher…
Afterpay Share Price
What Afterpay Does
Afterpay Touch is the corporate owner of the most popular “buy now, pay later” app in Australia. Basically, a shopper could ‘buy’ $100 of sexy lingerie from Target and ‘pay’ off the purchase in four equal instalments of $25. Afterpay clips the ticket (around 4% of the purchase price) for offering the ‘credit’ to consumers.
As of early 2019, Afterpay had over 3.5 million registered users worldwide, making it one of Australia’s true technology success stories.
Competition in Australia includes Zip Co Ltd (ASX: Z1P), Sezzle (yet to join the ASX) and Splitit Ltd (ASX: SPT). I covered Splitit — and why I would probably avoid buying its shares — in this article: “Read This Before Buying Splitit Shares“. In the USA, a market which holds lots of promise for Afterpay, Affirm Inc offers the same service but arguably with more flexibility.
Peter Lynch is an oft-quoted author and the famous former fund manager from the USA. He believed ordinary people had an advantage over the ‘big shot’ analysts on Wall Street because we can spot trends in stores around the country and then buy shares in companies that are changing the world before the analysts work it out.
In my opinion, this general truth is often taken too literally. While being in stores (or a shopping centre like Westfield) may have helped you spot Afterpay early on, I think there’s much more to successful long-term investing than finding the next consumer trend.
Remember fidget spinners? Me neither.
In my view, Afterpay has an attractive product, a peculiar level of capital intensity and the advantage of being a first-mover/market leader. However, I think its valuation reflects an expectation that it will dominate its geographical markets and enjoy success in adjacencies (e.g. search/referrals). Anything is possible and I like ‘optionality’ as much as the next long-term investor — but I don’t like to pay for it.
If you’re a long-term ASX investor I think Afterpay shares should be on your watchlist. But if you are, there should no need to rush in and buy at these levels. I’m not.
At times like these, when shares are pushing through all-time highs, I like to ask myself a simple question: ‘At any stage over the next five years, is it likely the sentiment towards this company be lower than it is today?’
Most likely, the answer is yes.
So what does it mean?
There are not-so-good times to be a buyer of shares and there are great times to be a buyer of shares. Oftentimes, these times tend to be when investor sentiment is at its higher or lowest, respectively. Meaning, wait for great opportunities – not good opportunities.
In other words, patience has never lost me money.
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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).
At the time of publishing, Owen does not have a financial interest in any of the companies mentioned.