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If you’re interested in investing in some promising mid cap shares, then you may want to take a look at the ones listed below.

Both have a lot of potential and have been rated as buys recently. Here’s what you need to know about them:

Adore Beauty Group Limited (ASX: ABY)

Adore Beauty is a growing online beauty retailer that could be worth a closer look. At the last count, the company had over 590,000 active customers in an Australian beauty and personal market worth ~$11 billion a year at present.

Due to the growing popularity of its website and the ongoing shift to online shopping, it appears well-placed to capture a growing slice of this market over the next decade.

Analysts at Morgan Stanley believe the company’s shares are in the buy zone right now. Especially after the sizeable pullback in its share price since listing on the Australian share market. After landing on the ASX with a listing price of $6.75, its shares are now down 24% at $5.10.

This is notably lower than what Morgan Stanley believes its shares are worth. It has an overweight rating and $8.35 price target on the company’s shares. 

Kogan.com Ltd (ASX: KGN)

Kogan is one of Australia’s leading ecommerce companies. It has been a big winner from the shift to online shopping caused by the pandemic in 2020. This has led to the company recording a huge lift in active customers and an even greater lift in its sales and earnings.

Pleasingly for the company, the shift to online shopping is still only in its infancy and has a lot further to go over the next decade or two. Which, given the strength of its offering and the popularity of its Marketplace, appears to have put Kogan in a strong position for growth over the long term.

In addition to this, the company has been bolstering its growing inorganically with acquisitions. One of these was announced recently with the $122 million acquisition of New Zealand-based Mighty Ape.

Analysts at Credit Suisse were pleased with this acquisition and upgraded Kogan’s shares to an outperform rating with a $20.60 price target.

More reading

• Here’s why the Kogan.com (ASX:KGN) share price jumped over 7% higher today
• Why City Chic, Kogan, Next Science, & NIB shares are charging higher
• 3 fantastic ASX growth shares to buy in 2021
• Here’s how Nuix (ASX:NXL) and these recent IPOs are performing since listing
• 2 highly rated mid cap ASX shares to buy for 2021

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 Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Magellan Financial Group Ltd (ASX: MFG) share price will be one to watch today after the Aussie investment group announced its latest acquisition.

What did Magellan announce this morning?

The listed investment company (LIC) announced that it is wading into the global fast food industry. Magellan has entered into an agreement to acquire a 10% stake in Guzman y Gomez (Holdings) Limited (GYG). 

GYG is a well-known, Australian-based quick service restaurant chain with a focus on Mexican cuisine. The group currently has 147 restaurants spanning Australia, Singapore, Japan and the United States.

The 10% shareholding is set to cost Magellan $86.8 million in cash, with completion conditional on GYG shareholder approval in late January 2021. The announcement makes the Magellan share price worth watching in early trade on Tuesday.

The acquisition will fall under Magellan’s Principal Investments business. Magellan will hold a non-executive director position but have no active day-to-day role in GYG.

Magellan Chairman Hamish Douglass said the investment company is “extremely pleased” to be come a GYG shareholder. The group will look to leverage its “deep investment experience” in the quick service restaurant industry as a major investor and supportive shareholder.

How has the Magellan share price performed this year?

There’s no doubt the coronavirus pandemic and subsequent response has wreaked havoc on markets this year. The S&P/ASX 200 Index (ASX: XJO) has edged 0.3% lower to 6,669.9 points this year while the Magellan share price has also struggled.

Shares in the Aussie LIC are down 4.4% since the start of January to $55.18 per share. Magellan currently has a market capitalisation of $10.1 billion and is trading near the middle of its 52-week range.

Magellan shares are yielding 3.9% per annum right now with a price-to-earnings (P/E) ratio of 25.3.

Foolish takeaway

It will be interesting to see how the the Magellan share price performs today as investors digest news of the group’s latest acquisition.

More reading

• Magellan (ASX:MFG) launches new ETF offerings
• How to turn $20,000 into $950,000 in 10 years with ASX shares
• These were the worst performing ASX 200 shares last week
• Why the Magellan (ASX:MFG) share price dipped lower today
• Top brokers name 3 ASX shares to sell today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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For many investors, blue chip shares are the foundation on which they build their portfolio.

This is due to the strength of their business models and often their long track record of delivering consistent earnings growth.

But which blue chip shares would be good options today? Two to consider are listed below:

ResMed Inc. (ASX: RMD)

The first blue chip share to look at is ResMed. It is a medical device company with a focus on sleep treatment products and ventilators. It has been growing at a consistently strong rate over the last decade and looks well-placed to continue this positive form. 

This is due to its world-class, cloud-connected hardware and software solutions and its huge addressable market. Management currently estimates that there are 936 million people with sleep apnoea globally. With the majority of these sufferers undiagnosed, it gives the company a significant runway for growth.

In addition to this, the company notes that there are 380 million people who suffer from chronic obstructive pulmonary disease (COPD) and over 340 million people living with asthma. That’s a further 720 million people that could benefit from ResMed’s products.

Last month, analysts at Morgans put an add rating and $30.99 price target on the company’s shares.

Telstra Corporation Ltd (ASX: TLS)

Another blue chip to look at its Telstra. While times have been hard for the telco giant, things are starting to look a lot rosier. This is thanks to its T22 strategy delivering on its objectives, the NBN headwind easing, and 5G internet taking off.

In addition to this, the company recently announced plans to split into three separate entities. This is expected to unlock value for shareholders.

One broker that is a fan of its plan is Credit Suisse. In response to the news, the broker retained its outperform rating and $3.85 price target on its shares. Its analysts believe Telstra’s plan reinforces its view around the underlying value of Telstra’s assets.

Another positive is that the broker believes Telstra will maintain its 16 cents per share fully franked dividend for the foreseeable future. Based on the current Telstra share price, this represents a fully franked 5.3% dividend yield.

More reading

• Cimic (ASX:CIM) share price falls despite positive update
• Forecast double-digit surge in Aussie dollar could put brakes on ASX rally in 2021
• ASX 200 Weekly Wrap: ASX hits new post-March high
• 2 of the best ASX growth shares to buy for 2021 and beyond
• Buy Telstra (ASX:TLS) shares instead of term deposits

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Newly ASX-listed companies such as Douugh Ltd (ASX: DOU), Cosol Ltd (ASX: COS) and 4D Medical Ltd (ASX: 4DX) have hit the ground running to deliver triple digit returns for their investors whilst some initial public offerings (IPOs) just never took off. Here are two of the worst performing IPOs from 2020. 

Youfoodz Holdings Ltd (ASX: YFZ)

According to Youfoodz, the company specialises in the production and distribution of high quality and affordable, ready-made meals and other convenience food products for residential, retail and corporate customers. The business operates three production facilities in Brisbane and has developed a scalable, proprietary in-house technology system to optimise production and supply-chain management across its centres. Its facilities produce more than 350,000 ready-made meals, 80,000 snacks and 25,000 drinks per week on average. 

The Youfoodz IPO had an offer price of $1.50 per share but its shares sank more than 30% to $1.05 on their first day of listing, and closed at 96 cents on Monday this week. The company has had a bumpy growth journey, delivering $123.3 million, $156.6 million and $127.3 million in revenue between FY18 to FY20 respectively.

Across those three years, Youfoodz reported a net loss after tax of $17.1 million, $34.6 million and $6.2 million respectively. Youfoodz is forecasting FY21 net revenue of $149.9 or a 17.7% increase in FY20. To achieve this, the company is focused on executing five key growth initiatives which include: 

• Capturing underlying market and category growth. 
• Growing segment market share and average order value through new offerings.
• Improving customer retention with a subscription model and loyalty program.
• Driving manufacturing automation and other efficiencies from a new, purpose-built manufacturing facility. 
• Selectively targeting new geographies.

Zebit Inc (ASX: ZBT) 

Zebit is a United States-based e-commerce merchant that also provides a financing solution to its customers via an in-house and proprietary buy now, pay later solution. It currently offers over 90,000 products across more than 25 product categories such as electronics, appliances, home décor, furniture, and beauty. 

There are approximately 119.8 million US adults who have a credit score that is below prime and subprime categories, or have a thin/stale credit record. Zebit defines these 119.8 million US adults as “financially underserved customers” because of the lack of cost-effective or mainstream credit options available to them. Zebit sees itself as one of the first e-commerce companies to address this large, underserved consumer base in the US with its in-house BNPL solution. 

The company achieved a record Black Friday performance with $1.63 million in net sales on the day, or an increase of 29.9% compared to Black Friday 2019. It also delivered total net sales of $23.5 million for the first two months of Q4 2020 or an increase of 21.7% on the prior corresponding period. Despite the company’s confidence in achieving its prospectus forecast, its shares closed at 98 cents yesterday, down nearly 35% from its offer price of $1.50. 

More reading

• Here’s how ASX buy now, pay later (BNPL) shares have performed in 2020
• Youfoodz (ASX:YFZ) share price crashes 25% lower following IPO
• Zebit (ASX:ZBT) share price higher on record Black Friday performance

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Yesterday, we got the news that the United States Congress (the equivalent to our federal parliament) has finally agreed on the deal for a new round of coronavirus stimulus spending. It’s the first major coronavirus relief since the almost-US$2 trillion initial package was passed back in March.

Reporting from the Australian Financial Review (AFR) yesterday tells us that the bill will pass into law very shortly, pending the signature of outgoing President Donald Trump. The measures contained in the stimulus bill include a temporary (lasting 10 weeks) US$300 weekly payment to supplement unemployment benefits. As well as US$600 stimulus cheque payments that will go to “most Americans”.

The payments will go to all who earn US$75,000 or less, and will “phase out” at income above this level. It also contains additional funding earmarked for schools, healthcare, the postal service, food aid, and renters facing eviction. The package also includes subsidies for “hard-hit businesses”, among other things.

The AFR reports that this agreement includes the “largest spending measure yet”, presumably referring to the support for businesses. Those measures alone will cost US$300 billion. The entire bill will carry a cost of “almost US$1 trillion” (A$1.3 trillion).

The agreement comes after months of “dysfunction, posturing and bad faith” on both sides of the aisle in Congress. Despite the size of this package, the payments aren’t as generous as the previous round. Back in March, Americans received US$1,200 cheques, rather than the US$600 payments they will be sent this time around. However, the report states that Republican lawmakers cited concerns over debt implications as the reason for the less-generous cheques this time.

How will this bill affect the markets?

It’s difficult to know if this new round of stimulus will have a medium-to-long-term effect on the US markets (and by extension, our own ASX). The AFR report states that “evidence [is piling] up that the [US] economy is struggling… [as] coronavirus cases and deaths spike”. Evidently, investors don’t seem to be too concerned about that of late, given that US market indexes like the Dow Jones Industrial Average Index (DJX: .DJI) are pretty much at all-time highs right now.

But on the ASX, the news of the agreement on the stimulus bill didn’t do much to stop our own S&P/ASX 200 Index (ASX: XJO) from sliding 0.08% yesterday. Although saying that, Aussie investors were probably more worried about the recent spike in coronavirus cases in Sydney rather than the American stimulus at the time.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 ends slightly down
• Why the Medibank (ASX:MPL) share price surged 4% higher today
• What will happen when Tesla (NASDAQ:TSLA) joins the S&P 500 today?
• Under attack! Why the WiseTech Global (ASX:WTC) share price is down 9%

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Charter Hall Group (ASX: CHC) share price will be on watch on Tuesday after the release of an announcement.

What did Charter Hall announce?

This morning Charter Hall announced that a consortia of Charter Hall managed funds and partnerships has exchanged contracts to purchase the David Jones flagship Elizabeth Street store in Sydney.

According to the release, the parties have agreed a purchase price of $510 million.

The iconic Sydney central business district (CBD) property comprises 12 levels on a strategic 3,530sqm prime CBD retail site, prominently located overlooking Hyde Park with views to Sydney Harbour.

Management notes that David Jones, as its vendor, has in recent years completed a significant capital works program which has created a world class showcase of department store retailing.

What are the financial impacts?

The release explains that Charter Hall acquired the property on a sale and leaseback transaction with David Jones. The retailer will provide a 20-year, triple-net (NNN) lease, with a minimum 2.5% per annum annual rent increases supplemented by an agreed turnover rent linked to sales performance.

Settlement is conditional upon approval from the Foreign Investment Review Board for David Jones entry into the lease.

The purchase price of $510 million reflects a 5% initial yield based on the initial annual net rent of $25.5 million. This reflects approximately $800 per sqm of lettable area.

Charter Hall’s CEO and Managing Director, David Harrison, believes the acquisitions ticks a lot of boxes.

He said: “This acquisition is consistent with our strategy in so many ways, namely: securing long WALE NNN leased assets, combining the appetite of our managed funds and partnerships to partner with the Group on high conviction prime real estate acquisitions, co investing Group capital alongside our partners to secure attractive earnings growth from our Property Investment portfolio, whilst also expanding the Group’s FUM platform.”

“Combined with other recently announced acquisitions and pre-leased development projects across office and industrial sectors, we expect the Group’s FUM to exceed $45 billion as at 31 December 2020,” concluded Mr Harrison.

More reading

• These are the 5 best ASX real estate shares of 2020
• Charter Hall (ASX:CHC) share price higher on 555 Collins Street update
• Why are ASX property shares on the rise today?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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One area that has been performing well this year is the tech sector. You only need to look at the chart in this article to see that.

Given the quality on offer in the sector, it’s no surprise that investors are keen to have some exposure to it.

But which tech shares should you buy? Two tech shares that have been rated as buys are listed below:

Jumbo Interactive (ASX: JIN)

Jumbo Interactive is an online lottery ticket seller and the operator of the Oz Lotteries website. While this website is easily the biggest contributor of revenue at present, this looks set to change in the future.

The company’s Powered by Jumbo SaaS business is expected to be the key driver of growth over the 2020s. This business is in a strong position to benefit from the shift online of lotteries globally. Management estimates that it has a US$303 billion global total addressable market, with just 7% of this market online at the moment.

One broker that is positive on the company is Morgan Stanley. It has an overweight rating and $14.30 price target on the company’s shares.

Nearmap Ltd (ASX: NEA)

Nearmap is a leading aerial imagery technology and location data company which has operations in both the ANZ and North American markets.

It has experienced strong demand for its services in both markets over the last few years, leading to impressive growth in its key Annualised Contract Value (ACV) metric. While the pandemic has put a dampener on things, the future remains very positive. Thanks to the quality of its offering, favourable industry tailwinds, and the launch of new products, management is aiming to grow its ACV by between 20% to 40% per annum over the medium term.

Morgan Stanley is also a fan of Nearmap. It currently has an overweight rating and $3.10 price target on its shares.

More reading

• 3 exciting ASX tech shares to buy in 2021
• 5 things to watch on the ASX 200 on Tuesday
• 10 highly rated ASX shares to buy in 2021
• 2 ASX growth shares to buy for big returns in 2021
• Why Abacus, Emerge Gaming, Jumbo, & Woodside shares are dropping lower

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 Nearmap 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. The Motley Fool Australia has recommended Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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As both US and Australian shares have climbed into the stratosphere since the March COVID-19 crash, a fierce debate has continued.

Are stocks overvalued?

This question is asked most of growth shares. The successful ones now have market capitalisations that are incredible multiples of their actual financial numbers.

For example, Tesla Inc (NASDAQ: TSLA) is now trading at a mind-blowing 1,377 price-to-earnings (P/E) ratio. The S&P 500 Index (SP: .INX) generally has a ratio of 42.08.

If this doesn’t mean much to you, consider this. Tesla is now worth as much as the 8 biggest petrol-car producers in the world.

In Australia, Afterpay Ltd (ASX: APT) shareholders have been laughing this year but the company doesn’t even have a P/E ratio — because its earnings are negative.

It’s now worth more than Coles Group Ltd (ASX: COL). Are we seriously believing people are using buy now, pay later more than buying groceries?

Why are investors willing to plough so much money into companies with such inflated valuations? 

Isn’t it risky? Won’t the bubble burst when everyone realises they’ve made a big mistake?

Why markets aren’t as risky as P/E ratios suggest

Monash Investors principal Simon Shields has a very simple explanation as to why it’s not as risky as it seems.

“I have yet to see anyone consider risk when comparing the high prices of today with the lower prices of yester-year,” he said on Livewire.

“Investing in stocks was riskier 30 years ago, much riskier 60 years ago, and riskier still 90+ years ago.”

How has investing in shares become safer in modern times? 

Shields attributes the shift to the many checks and balances that have been introduced over the decades.

“Over that time, the world has become a much safer place in which to buy stocks. Investors are better educated. Companies disclose more information and accounts are more reliable. Security regulators and legislators have closed loopholes and reduced the opportunity for fraud,” he said.

“Calculators and then computers have improved analysis. Technology has allowed everyone from investors, to companies, to regulators to make better-informed decisions, and so be less likely to be surprised. Central banks and governments have become much more risk averse.”

This may help explain why investors are willing to pay such high prices for companies they think have bright futures.

Growth shares are not as cyclical these days

Shields also pointed out that the very nature of growth stocks have changed in the past couple of decades.

“In the past, a lot of the growth achieved by growth companies was cyclical (as shown in the consumer discretionary, media, building materials, or transport sectors),” he said.

“When the economy slowed or went into a recession, companies in these cyclical sectors saw earnings forecasts pulled back much more than those for the less cyclically exposed value stocks.”

But since the internet boom in the 1990s, structural growth started to take precedence over cyclical growth.

“It used to be that ‘tech’ stocks were a distinct and small market sector. But new and better ways of doing things have spread rapidly across many industries with the penetration of smartphones, Web 2.0 and cloud computing,” Shields said.

“Structural growth now is a greater proportion of the market’s overall growth outlook, and it is at the expense of many mature low growth companies.”

Examples of structural growth include consumers moving from physical to online retailers and shifting from owning items to pay-as-you-use (eg Uber Technologies Inc (NYSE: UBER)).

With the onset of the coronavirus pandemic, even travel has been structurally changed with video conferencing and work-from-home becoming the norm.

Structural growth is more stable, giving investors more confidence to throw money at these businesses.

“These structural trends are playing out regardless of the economy’s cycle,” said Shields.

“[This] means the growth companies’ forecasts are less susceptible to cyclical disappointment, while at the same time they cause the value companies’ forecasts to weaken.”

More reading

• New BNPL enters ASX: How it promises to be different
• US “mum and pop” investors leaving the pros in the dust in 2020 stock rally
• What will happen when Tesla (NASDAQ:TSLA) joins the S&P 500 today?
• The most crazy ASX chart of 2020
• Here’s how rich Afterpay (ASX:APT) shares have made shareholders

Tony Yoo owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Uber Technologies. The Motley Fool Australia owns shares of AFTERPAY T FPO and COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are some ASX shares that are growing really fast and could be worth watching.

Some businesses have the potential to deliver market-beating returns if they’re growing a lot faster than other companies.

Here are two businesses where the revenue and profit is rising rapidly:

Bapcor Ltd (ASX: BAP)

Bapcor is the largest auto parts business in Australia and New Zealand.

The ASX share recently released a trading update as its FY21 half-year result gets closer.

For the financial year to date to the end of November, Bapcor’s overall revenue was up around 26%. The leadership explained that it is achieving operating leverage from lower expenses in areas such as travel and other areas of discretionary expenditure, as well as lower interest rates and the contribution from Truckline (an acquisition) which was not included in the prior corresponding period.

For the FY21 interim report, Bapcor is expecting to achieve revenue growth of at least 25% over the prior corresponding period in the previous year, with net profit after tax (NPAT) likely to grow by at least 50% compared to the prior corresponding period.

Darryl Abotomey, the Bapcor CEO and managing director, said: “We are very pleased with the strong performance of Bapcor’s businesses. Trade and wholesale represent over 80% of Bapcor’s business, with retail at approximately 20%. Historically, trade focussed businesses perform solidly in difficult economic conditions – which is again borne out of Bapcor’s current performance.”

The ASX share also said that the construction of the new Victorian distribution centre is progressing well. The company said this is an exciting development that will deliver significant operational benefits.

Fund manager WAM Research Limited (ASX: WAX), which holds Bapcor, said that the ASX share has benefited from an increase in domestic travel, reduced usage of public transport and increased second-hand car sales. WAM said that Bapcor has a strong balance sheet and the fund manager believes the company is well placed to make earnings-accretive acquisitions.

At the current Bapcor share price, it’s valued at 19x FY23’s estimated earnings.

Redbubble Ltd (ASX: RBL)

Redbubble is an ASX share that operates two of the largest online websites for selling artist-produced goods. Those websites are Redbubble.com and TeePublic.com. There are various product categories sold through the websites including bags, housewares, clothes, stationery and wall art.

In the first quarter of FY21, Redbubble generated marketplace revenue growth of 116% to $147.5 million. This drove gross profit higher by 149% to $64.5 million. In the quarter it also generated $22.1 million of earnings before interest and tax (EBIT) and $27.1 million of operating cash. It only made $10.2 million of operating cashflow in the prior corresponding period.

At the time of the trading update, Redbubble CEO Martin Hosking said: “The strategic priority for the group now is to ensure we extend the market leadership we have established. We intend to invest in the customer experience to improve loyalty and retention and ensure long-term higher levels of growth. The company has the resources to undertake the anticipated investments and the margin structure to ensure it can do so while remaining profitable.”

Joseph Kim from Montgomery Investment Management said that Redbubble has been one of the clear winners from the shift to online. However, whilst the ASX share has clearly been a “stay-at-home” trade, the fundie believes the business has the opportunity to emerge a longer-term structural winner from COVID-19 if it can capitalise in the recent spike in user and customer interest as a result of recent lockdown measures.

More reading

• The most crazy ASX chart of 2020
• The Bapcor (ASX:BAP) share price just got upgraded again
• Top brokers name 3 ASX shares to buy next week
• 4 leading ASX growth shares to buy for 2021
• Why Bapcor, Fortescue, Nufarm, & Saracen shares are pushing higher

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Yet another buy now, pay later provider is listing on the ASX this week – but the company promises it’s different to the rest.

Payright Limited (ASX: PYR) will start trading 11am AEDT on Wednesday after selling out its initial public offering (IPO) at $1.20 per share. The business will float with a market capitalisation of about $107 million.

The fintech will make it on to the bourse just before a quiet time over Christmas.

The Motley Fool spoke to co-founder and executive officer Myles Redward, who said the stock market was currently welcoming of new entrants.

“There’s a lot of positive sentiment, particularly for our sector buy now, pay later,” he said.

“It really was a case of trying to capitalise on that sentiment. Take advantage of the stock prices we’re seeing more broadly.”

Who can blame him. 

Afterpay Ltd (ASX: APT) shares are up 270% so far this year, and more than 1,335% since the March COVID-19 crash. Zip Co Ltd (ASX: Z1P) is up 48% year-to-date and more than 340% since its March trough.

How Payright is different to other BNPL

According to Redward, his business’ main moat is that it targets a different consumer compared to most other BNPL providers.

“If you look at most of the micro-ticket buy now, pay later providers, we’re talking sub-$1,000. Typically have average transaction sizes ranging from $150 to $500,” he said.

“For us, our average transaction size is about $3,000.”

So rather than clothing or small appliances, Payright users are paying for home renovations, health and beauty, or even higher education fees.

In fact, education contributes 34.1% of the gross merchant value that runs through the Payright system – the highest of any sector.

“Being a higher price point, it lends itself to a wider range of industry types, more diversified.”

To mitigate the risk of lending out bigger amounts of money, Payright does have to be more discriminating about the end users it lends to.

“We do put our applicants through a more robust credit assessment process,” Redward told The Motley Fool.

“So we do credit checks through Equifax Inc (NYSE: EFX), we consider a range of stability and capacity type measures and inputs… We ID-verify to safe harbour standards.”

Payright’s post-IPO plans

The IPO was set to raise $10 million or up to $20 million if it was oversubscribed.

Payright ended up landing $18.5 million. Combined with a pre-IPO capital raising round a few weeks ago, it now has $25 million to play with.

The money will be spent on sales and marketing, product development and technology – all in the name of growth, according to Redward.

“The reason we’re doing the IPO is to really accelerate and turbo-charge that growth over and above what we’ve been able to achieve.”

Revenue did rise close to 190% for the 2020 financial year compared to 2019, but it was coming off a low base. The business made a $8 million net loss off a turnover of $9.85 million for the year ending 30 June.

Australia remains the priority market, although its nascent New Zealand operations have just reopened after pausing during the first COVID-19 outbreak.

More reading

• The most crazy ASX chart of 2020
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Tony Yoo owns shares of AFTERPAY T FPO. 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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