The Afterpay Ltd (ASX: APT) share price has risen by 12.19% from Monday to Thursday this week. This company has pioneered the buy now pay later (BNPL) sector in Australia. It currently has a market cap of ~$13 billion and has spawned a large number of clones trying to replicate its success.
The BNPL companies entered a raging bull market after weeks of consecutive good news announcements and large gains. The market has realised ‘pay later’ is here to stay. Openpay Group Ltd (ASX: OPY) saw its share price rise by 160% from Monday to Thursday, followed by all BNPL companies on the ASX.
Where does the Afterpay share go now?
I believe a good growth-share should have a chance of returning 10 times the initial investment. From initial share price to today the Afterpay share price has risen by an amazing 1,669%. Yet, I don’t think it is still a good growth share. For it to rise another 10 times or 1,000%, it would need to have a market cap over $130 billion. I just don’t think it is going to happen.
CSL Limited (ASX: CSL) did it, but CSL also has a lot of unique products and intellectual property, creating a massive barrier to entry. Afterpay has no barrier to entry, an array of smaller competitors both local and international and faces the Australian market entry of Klarna, which is 5% owned by Commonwealth Bank of Australia (ASX: CBA).
While I don’t necessarily think the companies below are better than Afterpay, I do believe they are more likely to see large scale growth in their share price.
Sezzle Inc (ASX: SZL)
Many commentators often compare Zip Co Ltd (ASX: Z1P) favourably with the Afterpay shares. However, I prefer Sezzle. Sezzle is ASX-listed but headquartered in the United States. As such, it is a native company in the prized market for BNPL companies. Sezzle is focussed squarely on the Gen Z and millennial markets. It reaches them via its merchants primarily.
The company increased its users and its merchants tenfold between 2018 and 2019. Today it has a network of 1.3 million users and 14.9 thousand merchants.
EML Payments Ltd (ASX: EML)
EML payments is a fintech company more diverse than the Afterpay share. Its core business is selling gift cards at supermarkets. This is a high-margin revenue stream which the company continues to grow via acquisition of Prepaid Financial Services in Ireland.
However, they are also one of the great enabling firms of the fintech sector. Its product, EML ControlPay is the payments engine behind many of the world’s surging BNPL companies. These include Zip Co, Italian BNPL company Scalapay, and Sezzle. If this continues they will be receiving benefits of the BNPL marketplace across many companies and many countries.
Foolish takeaway
I am very confident both of these companies can increase their market caps tenfold. In the case of EML, that would mean a market cap over $10 billion. In the case of Sezzle, a market cap over $2.5 billion. I would be happy to own either of these shares.
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As of 2/6/2020
More reading
- Why Appen, CSL, Openpay, & Zip Co shares are tumbling lower
- Is today’s BHP, NAB or Afterpay share price a good investment?
- Why today might be a good day to buy NAB and Westpac shares
- Could the Openpay share price signal a wider boom for BNPL?
- 3 small cap ASX tech shares that could be stars of the future
Daryl Mather owns shares of Sezzle Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and Emerchants Limited. The Motley Fool Australia has recommended Emerchants Limited and 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.
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