The Afterpay Ltd (ASX: APT) share price dropped 11% just on Tuesday. Are Afterpay shares now a buy?
What happened on Tuesday?
Global media are reporting that a prospective vaccine being developed by Pfizer and BioNTech can prevent over 90% of people from getting COVID-19 according to a preliminary analysis.
The vaccine trial has been tested on 43,500 people across six countries. Thankfully, no safety concerns have been raised in the trial.
Even AstraZeneca, one of the other global healthcare giants trying to develop a vaccine said that the Pfizer data is ‘incredibly promising’.
There are still several questions to be answered. Does it give permanent immunity? Is it possible for so many vaccines to be produced quickly? The temperature needs to be minus 80C for transportation, how will this be achieved with the huge volumes necessary?
Why would this affect Afterpay?
There appeared to just be a general rotation out of growth names that have growth strongly during this COVID-19-affected year.
Names like Temple & Webster Group Ltd (ASX: TPW), Kogan.com Ltd (ASX: KGN) and Redbubble Ltd
(ASX: RBL) all fell heavily as well.
But Afterpay isn’t an online-only operator. It was growing underlying sales strongly before COVID-19 and it’s steadily increasing its presence in stores any way, so even if some retail sales go back to physical stores then it seems Afterpay will have the distribution to capture some of that shift.
The recent FY21 first quarter update from Afterpay was very strong. It said that it had a strong underlying sales performance in all regions. Underlying sales went up 115% to $4.1 billion. This was also 9% higher than the underlying sales achieved in the fourth quarter of FY20.
In terms of its annualised underlying sales growth, the run rate has reached $16.4 billion, up from $15 billion in the fourth quarter of FY20.
Active customers increased globally by 98% to 11.2 million. The US now has over 6.5 million active customers. Its global net transaction margin was maintained too.
So is it worth buying?
I’m not sure about Afterpay. If you assume the current growth rate, margins and losses rates are maintained for a long time then you can make a case for owning Afterpay shares. But competition may cause margins to lower in the future. Regulation could also be a problem.
I don’t know if it’s worth considering today – so it’s not the type of investment I’d make, I prefer other ASX growth shares like payment businesses such as Pushpay Holdings Ltd (ASX: PPH). And to a lesser extent, EML Payments Ltd (ASX: EML)
