Top broker says this ASX stock is a better buy than Afterpay

If you feel like you missed the chance to jump on the surging Afterpay Ltd (ASX: APT) share price, there could be another boat you can catch.

They are big shoes to fill though as Afterpay is the best comeback kid on the S&P/ASX 200 Index (Index:^AXJO) with the stock surging from its COVID-19 low point in March to around $45 this afternoon.

That represents a near 500% gain when other buy now, pay later (BNPL) players have been left far behind.

Afterpay stealing the spotlight

Mind you, the Zip Co Ltd (ASX: Z1P) share price and FlexiGroup Limited (ASX: FXL) share price have also staged a strong recovery, but their 200% odd rebound isn’t quite as exciting as the bounce in Afterpay.

The silver-lining is that FlexiGroup is far more attractively priced than Afterpay even though they both are exposed to similar tailwinds, according to UBS.

Cheaper alternative to Afterpay

“While COVID-19 uncertainties remain, recent feedback has been relatively positive with respect to customer arrears holding stable and resilience in BNPL,” said the broker.

“While near-term earnings risks are high, we believe this is more than reflected in FXL’s price (9.7x FY21E PE, 6.1x FY22E ‘normal year’ PE).”

The latest consumer survey undertaken by UBS also added to the broker’s bullish view towards the stock.

Consumer spending coming back with debt

What the broker found was the spending intentions were holding up better than it feared, even though consumers were looking to dip into savings and take on more debt to fulfill their shopping desires.

That doesn’t sound particularly sustainable to me – but hey, that’s something to worry about later.

There was also a marked increase in the number of consumers intending to use BNPL services. This went up to 7% from 4% in October last year.

Is FlexiGroup a buy?

Further, the survey found that 20% of respondents were looking to reduce the number of credit cards they held and 13% of them nominated BNPL as the reason for this.

UBS is recommending FlexiGroup as a “buy” with a 12-month price target of $1.60 a share, while slapping a “sell” rating on Afterpay as it believes the stock is way overpriced.

If you are looking for other attractively priced stocks to buy for the COVID-19 recovery, you might want to download this free report from the experts at the Motley Fool.

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More reading

• New to investing? Put $500 into these top ASX 200 shares
• If the ASX 200 crashes again, which shares should you sell?
• After hitting $50, the Afterpay share price has pulled back. Is it good value?
• The ASX 200 stock hit by the Brazilian COVID-19 wave
• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower

Brendon Lau has no position in any of the stocks mentioned. 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 FlexiGroup Limited. 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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