The Afterpay Ltd (ASX: APT) share price was on form earlier today before fading in late trade.

At one stage the payments company’s shares were up as much as 5% to $54.63.

When its shares hit that level, it meant they were up a whopping 580% from the 52-week low they hit in March.

Why has the Afterpay share price been on fire over the last three months?

There have been a number of catalysts for the incredible rebound in the Afterpay share price since March.

The first was the resilience of its business model, which caught the market by surprise. Many investors were sure that Afterpay would struggle in a recession, but the company has proven them very wrong.

Not only has Afterpay continued to deliver explosive underlying sales growth, its bad debts have remained consistent.

I believe the low average transaction values and the flexibility of its business model are to thank for its strong bad debt performance. In respect to the latter, over the last few months Afterpay has required the first instalment upfront for purchases, with three payments to follow. I believe this has reduced the overall risk of each transaction without stifling its growth.

What else is supporting its share price?

Another key catalyst to its strong share price performance has been the emergence of Tencent Holdings on its share registry as a substantial shareholder.

Given how powerful Tencent is in Asia thanks to its massively popular WeChat app, it could potentially open up this key market to Afterpay in the future.

Combined with potential expansions onto mainland Europe and its rapidly growing U.S. business, Afterpay could continue its meteoric growth for a long time to come.

Speaking of its U.S. business, that was another driver of its strong share price rebound. A recent update revealed that it now has over 5 million active customers in the United States using its buy now pay later service.

Impressively, more than one million new customers started using its platform in the country during a 10-week period at the height of the pandemic.

And while 5 million active customers may sound like a large number, there is still a long runway for growth in the lucrative market. Rival Zip Co Ltd (ASX: Z1P) has just entered the United States via an acquisition and revealed that it estimates the retail market to be worth $5 trillion a year.

Should you buy Afterpay shares?

While its shares do trade at a significant premium to the market average and carry a lot of risk, I believe they could still be a great long term option for investors.

In light of this, I would still be a buyer of its shares if you’re prepared to make a buy and hold investment. Though, restricting your holding to a small part of your portfolio might be prudent given the risks.

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James Mickleboro 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. 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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Standard and Poor’s announced a big reshuffle to the key ASX indices that could see a number of ASX stocks outperform and underperform in the near-term.

The June quarterly rebalance includes a bigger than normal shake-up of the S&P benchmarks as the March rebalance was held over due to the COVID-19 crisis.

History shows us that index inclusions and exclusions tend to have an impact on the share prices of ASX stocks swept up in the changes.

The quarterly ASX anomaly

This seems to be unique to Australian shares and is called the “index effect”. This market anomaly could form a basis for some short-term trades for nimble investors.

The analysts at Macquarie Group Ltd (ASX: MQG) found that the stocks to be included in the S&P/ASX 100 (Index:^ATOI) (ASX:XTO) tend to underperform in the weeks before they are added to the index.

However, these stocks after two-weeks from their inclusion and the broker speculates this is due to selling from small cap fund managers.

Many of these funds have mandates that prevent them from owning stocks in the top 100 benchmark and are forced to sell.

Large caps that could outperform

This means the Nextdc Ltd (ASX: NXT) share price and Saracen Mineral Holdings Limited (ASX: SAR) share price could be heading higher soon as they are the latest to be added to the index.

They replace international shopping centre owner UNIBALWEST/IDR UNRESTR (ASX: URW) and miner Whitehaven Coal Ltd (ASX: WHC).

Interestingly, large caps that are dropped from the ASX 100 don’t generally come under much selling pressure, added the broker.

Different impact on ASX 200

However, the same can’t be said for the S&P/ASX 200 Index (Index:^AXJO).

“S&P/ASX 200 index additions have typically outperformed strongly in the weeks prior to the announcement of the changes,” said Macquarie.

“Stock performance has often peaked prior to implementation date. ASX 200 deletions have traditionally underperformed as they are removed.”

What this means is that it might be too late to buy ASX shares that are about to become part of the ASX 200 club as the index change comes into effect this Friday.

The ASX 200 stocks that could lag

On the other hand, those getting the boot could underperform from next week.

On that note, the six ASX 200 rejects are the ones to watch. These include aged care company Estia Health Ltd (ASX: EHE), investment platform Hub24 Ltd (ASX: HUB), online lottery group Jumbo Interactive Ltd (ASX: JIN), drug maker Mayne Pharma Group Ltd (ASX: MYX), miner Pilbara Minerals Ltd (ASX: PLS) and wealth manager Pinnacle Investment Management Group Ltd (ASX: PNI).

More reading

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• Got $5,000 spare? Consider Wesfarmers shares and these 2 other ASX companies
• These 5 ASX shares were last week’s worst performers

Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited and Macquarie Group Limited. The Motley Fool Australia has recommended Hub24 Ltd. 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.

The post The ASX winners and losers from the latest S&P index shake-up appeared first on Motley Fool Australia.

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