The Afterpay Ltd (ASX: APT) share price currently has a market valuation equal to Santos Ltd (ASX: STO). Whether you think Afterpay is overbought or not depends on whether you think it will grow its earnings to match its valuation. However, from this point, 2 things are pretty clear.
First, it is unlikely to double in price again, let alone another 2 or 3 times. Second, it is clearly the market leader in Australia and possibly the second globally behind the Commonwealth Bank of Australia (ASX: CBA)-backed Klarna app.
Does the Afterpay share price indicate a bubble?
Last week saw most buy now pay later (BNPL) companies valuations rise. The Splitit Ltd (ASX: SPT) share price rocketed up by 110% last week. Meanwhile, the Sezzle Inc (ASX: SZL) share price continued winding its way upward, rising by a massive 30.13% last week. The Afterpay share price rose by only 12.87% by comparison, and Zip Co Ltd (ASX: Z1P) actually fell by 4.5%.
These wild swings are exactly what we saw in the dot-com bubble. There was always a share of the moment that defied gravity to rocket upwards out of nowhere and for no real reason. Followed by others crashing.
But this time it’s different
The dot-com bubble created no real value for the most part. Just wild speculation about what was possible on the internet. Even though the Afterpay share price has inflated so much, BNPL is vastly different. It speaks to 2 separate dynamics in the marketplace today. First, the rise of Gen Z in particular, but also millenials.
These generations eschew credit cards. It pays to remember that the millenials spawned the Financially Independent Retire Early (FIRE) movement. For whatever reason, these 2 generations are extremely financially savvy and appear to have learned a lot from the errors of Gen X, in particular.
The second dynamic is the shrinking of discretionary income. For years Australians have seen very low wage growth. At the same time taxes and charges continue to balloon. Moreover, prices for food staples continue to increase, as do house prices.
Foolish takeaway
The BNPL sector is definitely not a bubble. It is one of the last ways left for most people to acquire discretionary items. The market in Australia, the US and Europe is very large and underserved.
While the Afterpay share price has risen to a point where it is unlikely to see large scale growth, there are still very good growth opportunities. Personally, I have invested in Sezzle. However, I also like Zip Co as a prospective share purchase.
If the BNPL sector is too volatile for you, our experts have found 3 more high-growth opportunities.
3 “Double Down” stocks to ride the bull market higher
Motley Fool resident tech stock expert Dr. Anirban Mahanti has identified three stocks he thinks can ride the bull market even higher, potentially supercharging your wealth in 2020 and beyond.
Doc Mahanti likes them so much he has issued “double down” buy alerts on all three stocks to members of his Motley Fool Extreme Opportunities stock picking service.
*Extreme Opportunities returns as of June 5th 2020
More reading
- Should you buy ANZ, CBA, NAB, or Westpac? Here’s what this broker thinks
- How to try and beat the market with ASX shares
- ASIC hits Commonwealth Bank with civil proceedings
- 5 things to watch on the ASX 200 on Tuesday
- Afterpay and 2 more ASX 200 shares to watch this week
Daryl Mather owns shares of Sezzle Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post Is the Afterpay share price a boom or a bubble? appeared first on Motley Fool Australia.
from Motley Fool Australia https://ift.tt/2Yqlyv8
Leave a Reply