After hitting an all-time high of $50 per share yesterday, the Afterpay Ltd (ASX: APT) share price is pulling back today. At the time of writing, Afterpay shares are down 6.39% to $45.97 after rising more than 11% since the start of the week.
So with this pullback, are Afterpay shares good value today?
Why Afterpay shares have been hitting the roof
Afterpay has been benefiting from a remarkable swing in investor sentiment. It was only a little over 2 months ago that the buy-now-pay-later pioneer was trading at under $9 per share. When the S&P/ASX 200 Index (ASX: XJO) crashed in March, investors flooded out of Afterpay, fearing the company’s credit risk would cripple it during a recession.
What a difference 2 months make.
Since the March lows, Afterpay shares surged by more than 500% to reach yesterday’s high. Even following today’s pullback, any investor who bought at the March lows would still be up more than 470%.
A number of factors have restored investors’ confidence in Afterpay. Paramount was the revelation that Chinese tech giant Tencent Holdings had acquired a 5% stake in the company over March and April – an investment that has no doubt already paid off handsomely.
Afterpay has also revealed that use of its platform has been soaring in recent months, especially in the United States.
Are Afterpay shares good value today?
Now that Afterpay shares have come off the boil, many investors (especially those with FOMO) might be wondering if today is a good ‘buy-the-dip’ opportunity.
Unfortunately, I don’t believe it is.
Since Afterpay has yet to turn a profit, this it makes it very difficult to value the company. It doesn’t even have a price-to-earnings (P/E) ratio yet (although Yahoo Finance estimates their forward P/E at an eye-watering 769.23).
If we look at the far flakier price-to-sales ratio, we see Afterpay shares are trading on 38x sales. Its price-to-book ratio isn’t more encouraging, coming in at more than 15.
So Afterpay is being priced for massive growth, that much is obvious. But is this justified?
Well, the company is growing very rapidly. After launching in the US only 2 years ago, Afterpay now has more than 5 million active users, and 9 million in total. The company told investors last month that more than 1 million new customers have joined since the start of the coronavirus outbreak.
Foolish takeaway
Despite some great pieces of news released by Afterpay, this does not get me on board with its current share price. Afterpay has always been a highly volatile share, so I’ll be waiting for a further pullback before considering an investment.
I may well be on the wrong side of history though!
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More reading
- The ASX 200 stock hit by the Brazilian COVID-19 wave
- ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower
- Why the NAB share price is surging higher today
- Why Afterpay, CSL, Fortescue, & Newcrest shares are dropping lower
- Where I would put $10,000 into ASX 200 shares today
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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