The share price of Southeast Asian buy-now-pay-later (BNPL) IOUpay Ltd (ASX: IOU) surged over 16% at one point today despite no obvious news or announcements.
Still, IOUpay’s shares are still nearly 50% lower than what they were after reaching 85 cents per share in February.
Are shares now in bargain territory?
IOU share price
Why have IOUpay’s shares bounced?
There hasn’t been any obvious announcements or news that might’ve acted as a catalyst behind the jump in IOUpay’s share price today. Sometimes investors buy in anticipation of an announcement or something similar, but nothing has been confirmed at this stage.
Last week IOUpay entered into an agreement with MYP1 Commerce allowing MYP1’s merchants to connect to IOUpay’s BNPL platform.
The partnership will last for one year and will involve IOUpay’s merchant app services being integrated across 15,000 merchants’ point of sale (POS) terminals.
Are IOUpay’s shares good value?
Since investors have turned their attention towards IOUpay in recent months, it seems as though most of the upwards movement in the company’s valuation has been the result of announcements and partnerships rather than movements in underlying fundamentals such as revenue or profit.
Over the past few months, IOUpay has been granted a Malaysian money lending licence, partnered with EasyStore, iPay88 and now with MYP1.
As such, IOUpay’s valuation does seem fairly expensive if you choose to look at traditional valuation metrics such as Price/Sales (P/S). Based on trailing FY20 figures, IOUpay’s shares are trading at around 37x sales.
The market is clearly pricing quite high levels of growth and expecting its recent partnerships to translate into ongoing revenue streams in the years to come.
Investing in early-stage companies with such a limited track record doesn’t fit my own style of investing, so I’m not chasing IOUpay’s shares at these levels.
If you are planning on being a long-term holder of IOUpay, I would argue that there’s nothing wrong with waiting on the sidelines to see how these aforementioned partnerships precipitate in revenues and profits in the future.
This will potentially allow you to assess the company and its long-term prospects a bit better, rather than basing the current valuation on announcements that haven’t yielded any cashflows yet.
Part of the Rask investment philosophy is investing in companies with a sustainable competitive advantage. BNPL is definitely a crowded space, and I’m unsure what competitive advantage one company might have over another.