4 reasons the Afterpay share price just hit $50

This morning the Afterpay Ltd (ASX: APT) share price continued its sensational run and broke through the $50 mark for the first time.

What a turnaround this has been for the payments company over the last couple of months.

It was around this time in March that Afterpay’s shares hit a 52-week low of $8.01. Now they are trading 525% higher than this level!

Why has the Afterpay share price rebounded and broken through $50?

Below are four key reasons why its shares have just reached this milestone:

Strong third quarter update.

At the height of the pandemic there were some in the market that feared Afterpay would struggle with lower sales and higher bad debts. How wrong they were. Afterpay’s third quarter update not only revealed incredibly strong sales and customer growth, but bad debt levels that were in line with pre-pandemic levels. The company’s flexible business model has helped play a key role in this. Users of its service may have noticed that you have to pay the first instalment of an online purchase upfront now, with three fortnightly payments to follow. This has reduced the overall risk of each transaction and doesn’t appear to have stifled its growth.

Tencent Holdings becomes a substantial shareholder.

Another driver of its strong share price performance has been the arrival of Tencent Holdings on its share registry as a substantial shareholder. Tencent is a US$500 billion Chinese conglomerate and the owner of the massively popular WeChat app. It is being seen by investors as the company that could help Afterpay expand into the Asian market in the future.

Impressive U.S. update.

Investors were also buying Afterpay’s shares after the recent release of an update on its operations in the United States. That update revealed that there are now more than 5 million active customers in the United States using its buy now pay later service. The company also revealed that more than one million new customers started using its platform in the country during a 10-week period at the height of the pandemic. Afterpay also noted a significant jump in brands and retailers using its platform. Not bad after just two years operating in the country.

Index inclusion.

A final catalyst to its strong share price gain has been its upcoming inclusion in the MSCI Australia index. The MSCI Australia Index is designed to measure the performance of the large and mid cap segments of the Australia market and has 69 constituents. Its strong performance over the last 12 months gives it a market capitalisation that is more than sufficient to be included at the rebalance on Friday. Inclusion in this index tends to bring a company onto the radar of fund managers globally and also leads to increased buying from index-tracking funds.

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• Why Afterpay and these ASX shares just zoomed to 52-week highs
• ASX 200 jumped higher, rises more than 2%

Motley Fool contributor James Mickleboro 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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