Is the Afterpay share price heading to $200, or is this the ASX’s biggest bubble?

Afterpay Ltd (ASX: APT) is yet again the talk of the investing town this week. Depending on whether you’re an Afterpay shareholder, you’ll probably either be opening yet another bottle of champagne or performing another eye-roll at what’s been happening with the Afterpay share price of late.

Let’s roll through the numbers just so we’re all on the same page here.

The Afterpay share price started the year at $30.63. In the pandemic-induced March share market crash, Afterpay shares plummeted, reaching a low of $8.01 on 23 March. Since then, Afterpay hasn’t looked back. The shares quickly rebounded back to $20, then $30. Then news broke that Chinese e-commerce giant Tencent Holdings had acquired a 5% stake in the company and the shares went ballistic. A series of record highs fell like dominoes. $50, $60, $70… for a while there, it seemed like the Afterpay share price had found a ceiling. Between 21 July and 18 August, the shares just hovered around $75 without too much movement.

But then reporting reason came and the shares took off again. Afterpay told investors last week that it expected its net transaction loss (NTL) as a percentage of underlying sales to come in better than previously anticipated. It also told the market that earnings would come in around $44 million instead of the $20-25 million previously flagged.

And it was off to the races yet again. Since that announcement was made public last Wednesday, the Afterpay share price is up another 21% and has reached a new, all-time high of $95.97 just this morning.

Now for the part you’ve all been waiting for. Since 23 March, Afterpay shares are up an eye-watering 1,098%, going off today’s new all-time high. Yes, we have on our hands a 5-month 10-bagger stock.

Afterpay shares: to the moon or back to earth?

So where to from here? Well, I’ve looked at Afterpay from both sides now, and still, somehow, it’s fairly easy to label Afterpay as either the ASX’s biggest bubble or a future $200 share. Yes, the company is growing gangbusters. Yes, it has an incredibly large potential growth runway. But it is still priced at ~$25.5 billion without any profits yet rolling through the door. This morning, Afterpay reported a statutory loss of $22.9 million. Saying that, with net income growth of 97% year on year, it won’t be long until Afterpay’s books are in the green.

The bottom line is that Afterpay is a great company and one growing at breakneck speed. It is now being fully priced as such though, with perhaps some sugar and cherries on top. I’m not interested in buying such a frothy and feverish share price at a record high, but if you are prepared to, you’d better be strapped in for the long run, in my view. I think there is a fair chance the Afterpay share price will experience a pull-back at some time down the road, so you might want to wait for such a situation.

But perhaps you shouldn’t listen to me, I’ve been wrong on this company far too many times in the past. Maybe I don’t know Afterpay at all…

More reading

• Afterpay reckons this 1 number shows its ‘moat’
• What Prospa’s share price reaction and profit results mean for ASX banks
• Where to invest in a ‘rip-roaring’ share market rebound
• ASX 200 jumps 0.7%: Afterpay reaches 9.9 million customers, Woolworths strong sales growth
• Afterpay share price in focus after stellar FY 2020 result

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.

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