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The Xero Limited (ASX: XRO) share price has been on form again on Tuesday.

So much so, in afternoon trade the business and accounting software platform provider’s shares climbed 2% to a record high of $106.68.

When the Xero share price reached that level, it meant it was up 34% since the start of the year.

Why is the Xero share price at a record high?

Investors have been fighting to get hold of Xero’s shares over the last few months following a positive annual general meeting update and the announcement of a new acquisition.

In respect to the former, at its annual general meeting in August, Xero revealed that it has continued its subscriber growth in FY 2021 despite the pandemic.

Since the start of April and through to 31 July, Xero recorded 96,000 net subscriber additions to its platform. This lifted its subscribers to a total of 2.38 million at the end of the period.

Pleasingly, this was driven by positive net subscriber additions in all geographies during the four months.

As for its acquisition, earlier this month Xero completed the acquisition of Waddle for up to A$80 million.

Waddle is a cloud-based lending platform that helps small businesses access capital through invoice financing. Its platform allows a range of banks and financial technology companies to more easily lend to small businesses by leveraging their accounting data and automating many of the manual processes typically involved in invoice financing.

Management notes that the acquisition aligns with its strategy to grow its small business platform and to address critical small business financial needs.

Waddle’s best-in-class cloud-lending platform, combined with small businesses’ invoice data, is expected to enable the delivery of tailored invoice financing solutions to small businesses.

Xero’s CEO, Steve Vamos, commented: “The acquisition of Waddle is an important step in our strategy to help small businesses better manage cash flow and gain access to working capital. Waddle’s lending platform has the potential to enable a wide range of banks, fintechs and other lenders to better support small business financial needs. We’re excited about the benefits Waddle can bring to many of our customers and banking partners.”

Is it too late to invest?

While Xero’s shares are certainly not cheap after this strong run, I still see value in them for long-term focused investors.

This is due to its very positive long term outlook thanks to the shift to online accounting and its evolution into a full service small business solution.

More reading

• 2 outstanding ASX tech shares to buy for the long term
• 5 things to watch on the ASX 200 on Monday
• 2 of the best ASX 200 shares to buy in October
• ASX 200 down 0.95%: Mesoblast crashes lower on FDA update, Afterpay surges higher
• Why WAAAX shares like Afterpay (ASX:APT) and Xero (ASX:XRO) are surging

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 Xero. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Tesserent Ltd (ASX: TNT) share price is flying higher today, up 18%. This comes after the company’s ASX announcement earlier today on two new key appointments along with organic growth from its acquisition synergies.

Tesserent shareholders have had much to celebrate this year, with the share price leaping higher in July and August following several new strategic acquisitions.

Which is not to say shareholders haven’t suffered through white-knuckle moments. During the COVID-19 market panic, Tesserent’s share price plunged 73% from 18 February through to 23 March.

Since that low, the share price has rocketed 750% higher, putting it up 538% year-to-date. For comparison of just how remarkable that performance has been, the All Ordinaries Index (ASX: XAO) is down 10% over that same time frame.

What does Tesserent do?

Tesserent provides cyber security and networking solutions to businesses and government institutions across Australia. Its Cyber 360 strategy offers integrated solutions for 24/7 monitoring, protection and identification of cyber security threats.

The company employs more than 220 security engineers to help defend their clients’ digital assets. Following the acquisitions of several other cyber security businesses, Tesserent is now the largest dedicated cyber security company trading on the ASX.

What did Tesserent announce to the ASX today?

In this morning’s announcement, Tesserent revealed the appointment of 2 new key executives.

Peter Fearns will start in his role as the company’s new chief financial officer (CFO) in November. The company also announced the recent appointment of Nathan Knox as its head of synergies. Knox will focus on coordinating the company’s approach to help drive cross-selling opportunities.

In its sales and synergies update, Tesserent also stated it had won new federal, state, and local government contracts exceeding $6 million in the September quarter. Additionally, it retained 100% of its existing federal government clients, seeing the majority of contracts extended through 2020 and beyond.

It also reported significant enterprise contract wins in the month of September with financial services, insurance, advertising and media business, worth more than $4 million.

Continued growth from Tesserent’s annual recurring revenues streams from locked-in annuity contracts now exceed $30 million annually.

After the last few months of phenomenal growth, Tesserent’s share price will be one to watch.

More reading

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• Why the Droneshield (ASX:DRO) share price has rocketed higher
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The MyFiziq Ltd (ASX: MYQ) share price has been on the move today following the release of a new binding term sheet. During intra-day trade, the MyFiziq share price reached a record high of $1.50 before falling down to $1.25. At the time of writing, the MyFiziq share price has settled at $1.34, up 1.5%.

Let’s take a look to what MyFiziq announced today.

New agreement

MyFiziq advised it has signed a significant binding term sheet with Nexus Vita Pte Ltd, a Singapore-based health monitoring and management tech company.

In detail, Nexus has developed a system that bridges medical health and wellness management of an individual. The application tracks and manages medical and health records onto an easy-to-access digital platform, which can be shared with a medical professional. Nexus-Vita’s aim is to improve lifetime health and reduce the need for medical procedures, saving costs and resources to user and government health systems.

Under the agreement, both companies will add MyFiziq’s CompleteScan platform into all of Nexus-Vita’s products. The partnership will begin with the integrated rollout of Nexus-Vita’s pre-emptive health app. It is expected to be available to market by January 2021.

The conditions stipulate Nexus-Vita will deliver a minimum of 100,000 active users to the platform within the first 12 months of launch. This will be backed by a minimum revenue guarantee of US$3,588,00 per annum paid to MyFiziq.

As Nexus-Vita operates mostly in the greater Asia region, price sensitivity was a key driver to achieving its marketing strategy. As a result, Nexus-Vita will lower the per user month price of US$5.49 to US$2.99, reflecting a 46% discount.

What did management say?

MyFiziq CEO Vlado Bosanac said the transaction was a turning point in MyFiziq’s pathway to revenue and profit. He said:

Nexus-Vita is taking advantage of the global need for digital health engagement, which has seen a significant increase with individuals reluctant to attend medical facilities, and the compounding strain being experienced by the healthcare system worldwide as a result of the current pandemic.

Nexus-Vita has identified, developed, and entered the market with a dynamic and well-resourced offering. I am pleased to be working with Jeff and the Nexus-Vita team to provide the CompleteScan platform capabilities to their unique intervention, monitoring and pre-emptive health solution.”

Mr Bosanac mentioned the identifiable market opportunities that had arisen due to COVID-19, adding:

With the COVID-19 pandemic, the world has experienced a surge in mHealth, telehealth, virtual care and preventative health investment. Nexus-Vita’s user monitoring and engagement-based platform is in good company with recent activities in the digital health, telehealth, and medical sectors, which saw Teledoc, acquire Livongo for USD$18.5 billion.

Nexus-Vita is targeting both intervention and early identification of addressable disease prior to current preventative healthcare solutions, which is unique and innovative in this much-needed and accepted market segment.

MyFiziq share price performance

The positive announcement is good news for investors and will likely further fuel the meteoric MyFiziq share price rise. Since the start of the year, the MyFiziq share price has jumped more than 400% to reach its all-time high of $1.49 today. A market capitalisation of $155 million, the company has a huge runway ahead should it exceed market expectations.

More reading

• This ASX share soared 175% in September
• Why the MyFiziq (ASX:MYQ) share price is up 400% in just six weeks
• MyFiziq (ASX:MYQ) share price soars 30% on expansion news

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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I think that some ASX shares are worth a spot in every portfolio.

Some businesses can be attractive to income investors as they pay a dividend and they can be attractive for growth investors because they are demonstrating solid growth credentials.

I also like the idea of owning businesses that can be held for many years, which allows compounding for a long time rather than regularly triggering taxes on capital gains.

That’s why I like these two ASX shares that could work for every investor portfolio:

Future Generation Global Investment Co Ltd (ASX: FGG)

This is a listed investment company (LIC) which is a very interesting proposition. The idea of a LIC is that it can be invested in a portfolio of assets, usually shares, on behalf of shareholders.

As the name suggests, Future Generation Global provides exposure to international shares. It is invested in the funds of various Australian fund managers that target global shares. If you think about it, the ASX share actually has very strong diversification because each of those funds represents a whole portfolio of different shares.

Some of the fund managers that the LIC is invested with includes: Magellan Financial Group Ltd (ASX: MFG), Cooper Investors, Caledonia, Marsico and Munro Partners.

One of the most impressive things about the Future Generation set up is that these fund managers don’t charge management fees or performance fees. Instead, Future Generation Global donates 1% of its net assets each year to youth mental health charities. It’s a great cause in my opinion.

The ASX share’s gross portfolio return has been solid compared to the MSCI AC World Index (AUD), outperforming it over the past month, six months, twelve months, three years and since inception in September 2015. Over the past three years it has outperformed the global index by an average of 2.3% per annum.

At the current Future Generation Global share price it’s trading at a 14% discount to the pre-tax net tangible assets (NTA) at 31 August 2020. However, the NTA may have grown since then. It currently offers a grossed-up dividend yield of 2.1%. Its diversification and performance makes it an attractive long-term option.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is another ASX share that I believe is a really good long-term investment option.

The investment conglomerate owns a quality portfolio of important and mostly defensive businesses. Can you imagine going without your internet connection? Soul Patts owns a large amount of TPG Telecom Ltd (ASX: TPG) shares. Everyone needs to live in a property, and construction is getting boost in tonight’s budget. Soul Patts owns a significant portion of Brickworks Limited (ASX: BKW). Energy demand is expected to rise in Asia, so New Hope Corporation Limited (ASX: NHC) could rebound.

At 31 July 2020, the ASX could point to total shareholder returns (TSR) of an average of 12.7% per annum over the prior two decades, outperforming the All Ordinaries Accumulation Index by 5.2% per annum.

Whilst a majority of the return came from capital growth, dividends have been important too. Soul Patts has grown its dividend every single year over the past two decades. That’s a great streak.

Soul Patts receives dividends and distributions from its investments. Soul Patts pays for its expenses and then pays out enough of the cashflow to increase the dividend compared to the previous year. In FY20 it only paid out 57% of its regular operating cashflows, meaning a large chunk of earnings can be re-invested for more growth in FY21.

At the current Soul Patts share price it offers a grossed-up dividend yield of 3.5%. The ASX share has been rising recently, so the yield has been pushed lower. But 3.5% is still comfortably better than bank interest rates. 

More reading

• Where I’d invest $10,000 into ASX dividend shares
• Forget the tech boom, these ASX shares are primed for the recovery trade
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• 3 strong and reliable ASX dividend shares for October
• 5 ASX shares held by leading fund managers

Motley Fool contributor Tristan Harrison owns shares of Future Generational Global Investment Company Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company 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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The Coles Group Ltd (ASX: COL) share price is outperforming its largest rival after it was upgraded to “buy” by a leading broker.

The COL share price jumped 0.2% to $17.44 during lunch time trade with the Woolworths Group Ltd (ASX: WOW) share price fell 0.7% to $36.88.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) slipped 0.2% at the time of writing.

Broker upgrades Coles share price to “buy”

The stronger performance by the Coles share price coincides with Credit Suisse’s decision to lift its rating on the stock to “outperform” from “neutral”.

The broker’s move comes as it forecasts Australia will have one million more residents to feed come Christmas. This represents around a 4% increase in the population.

These “extra” people are made up of Aussies who can’t travel abroad this year for holidays due to COVID-19 restrictions.

It also includes long-term visitors, such as international students, who find themselves stuck here as international borders remain shut.

1 million COVID population boost

“The addition to the resident population in Australia is likely to be a significant benefit to domestic retail,” said the broker.

“We highlight food and recreational goods retail as areas likely to benefit disproportionately from a greater level of domestic expenditure.”

Credit Suisse found that the rate of retail spending growth was negatively impacted by an increasing number of resident departures in the past.

ASX stocks best placed to benefit

It added that the increase in spending is likely to be larger than the increase in population for 2020 and that food retailers will be among the biggest beneficiaries.

That’s understandable given the amount of food we feast on during the festive season.

This bullish outlook prompted Credit Suisse to upgrade its price target on Coles to $20.16 a share. It increased the Woolworths target by 12 cents to $40.43 and the Metcash share price by 7 cents to $3.62.

Coles better than Woolworths?

“We prefer COL to WOW,” explained Credit Suisse.

“In our view, a stronger cost out programme, lower level of capital expenditure, and higher payout ratio should result in absolute appreciation in COL and out-performance relative to WOW.”

The broker rates Woolworths as “neutral” and reiterated its “outperform” recommendation on Metcash.

Another retailer that the broker is urging investors to buy based on the same thematic is the Super Retail Group Ltd (ASX: SUL) share price.

The group is well placed to benefit from the multi-year increase in road trips and outdoor recreational activity. It also has a superior online offering compared to its rivals.

More reading

• Why I would buy CSL (ASX:CSL) and this blue chip ASX share
• What investors learnt from the RBA’s rate decision today
• Here’s where you could invest your Woolworths (ASX:WOW) dividends today
• Does time in the market really beat timing the market?
• ASX 200 down 0.2%: Northern Star & Saracen announce mega merger, IAG settles class action

Motley Fool contributor Brendon Lau owns shares of Woolworths Limited. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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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If you’re looking to add a few blue chip ASX shares to your portfolio this month, then you’re in luck.

The ASX is home to a number of blue chips which I believe could generate market-beating returns for investors over the 2020s.

Two blue chip ASX shares that I would buy are listed below. Here’s why I like them:

Coles Group Ltd (ASX: COL)

The first ASX blue chip share to consider buying today is this supermarket operator. Although its shares have been on fire this year, I still think they are good value for a long-term investment. Especially given its solid growth prospects and attractive dividend policy.

In respect to the former, I expect Coles’ long track record of same store sales growth and its focus on cost cutting, automation, and efficiencies to underpin solid earnings growth over the next decade. And with the company aiming to pay out 80% to 90% of its earnings to shareholders, this bodes well for its dividend growth in the future. At present, based on the current Coles share price, I estimate that it offers a fully franked forward 3% dividend yield.

CSL Limited (ASX: CSL)

A second blue chip ASX share to buy is this global biotherapeutics company. Due to the quality of its portfolio of therapies and vaccines, its growing plasma collection network, strong demand for immunoglobulins, and its high level of research and development investment, I am confident that CSL can continue to deliver strong earnings growth for the foreseeable future.

Overall, I expect this to lead to market-beating returns again for shareholders over the next decade. It is also worth noting that the CSL share price has come under pressure this year due to the pandemic. As a result, if you were to invest today, you would be buying at 16% discount to its 52-week high.

More reading

• Why the Coles Group (ASX:COL) share price just got upgraded to “buy”
• Leading brokers name 3 ASX shares to buy today
• 2 strong ASX dividend shares to buy today
• 2 of the best ASX 200 shares to buy in October
• 5 things to watch on the ASX 200 next week

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 CSL Ltd. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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The Australian dollar jumped after the Reserve Bank of Australia (RBA) unveiled its latest interest rate decision.

The decision by our central bankers to keep the official cash rate steady at a record low of 0.25% didn’t surprise anyone. ASX investors hardly battered an eyelid with the S&P/ASX 200 Index (Index:^AXJO) largely unmoved by the news.

The same can’t be said for the Aussie. It shot up from US71.9 cents before the RBA’s 2.30pm announcement to a two-week high of US72.1 cents.

Optimism from the RBA rate decision

I suspect currency traders were expecting more dovish commentary from the RBA to support expectations of further monetary easing.

But the board wants the federal government to do some of the heavy lifting. Its officials have said before that monetary easing alone won’t be enough to reflate the economy punctured by COVID-19.

The Morrison government will get a chance to prove it’s a team player tonight when Treasurer Josh Frydenberg hands in the budget.

Federal budget is the main event today

Economists are expecting the budget to be the most stimulatory since the Second World War as the government spends big to create jobs.

We could be left with a $200 billion budget hole in the aftermath, but it will be worth it if Frydenberg can get Australia humming at pre-coronavirus levels again in 2021.

I don’t think the RBA meant to be party-poopers, but it’s written off any V-shape recovery.

If anything, its governor Philip Lowe said the recovery will be bumpy and will take “some time” before we get back to end 2019 levels.

Glass half full

While Dr Lowe did point out other risks to growth, his statement was leaning on the cautiously optimistic side, in my view.

It started off pointing out the gradual global recovery from the pandemic and highlighted success stories like China to balance out the resurgence of the virus in other countries.

“Financial conditions remain accommodative around the world and supportive of the economic recovery,” said Dr Lowe.

“Financial market volatility is low and the prices of many assets have risen substantially despite the high level of uncertainty about the economic outlook.”

Ample liquidity

Australian dollar bulls may have also felt emboldened by the fact that he didn’t seem fussed about the rise in the Aussie.

The RBA also revealed that Authorised Deposit-Taking Institutions (ADIs) have so far drawn down $81 billion of its $200 billion Term Funding Facility and that there was ample amount of cheap credit in the system.

Don’t rule out another rate cut in November

But despite these positives, I think it’s premature to rule out another interest rate cut next month to 0.1%, which is what leading economists are increasingly forecasting.

Dr Lowe indicated as much at the end of his statement when he said “the Board continues to consider how additional monetary easing could support jobs as the economy opens up further”.

The RBA and government have to do a lot more supporting for a longer period to get us back on the path of growth.

More reading

• Why the Coles Group (ASX:COL) share price just got upgraded to “buy”
• Does time in the market really beat timing the market?
• ASX 200 down 0.2%: Northern Star & Saracen announce mega merger, IAG settles class action
• Meet the latest ASX small cap stock that’s racing ahead during COVID
• Why now is a great time to buy ASX shares

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Dacian Gold Ltd (ASX: DCN) share price is rocketing higher today, up 15.15% in afternoon trading (at the time of writing). The rise in the Dacian share price follows on the company’s preliminary September quarter update, released to the ASX earlier in the day.

Today’s gains will come as welcome news to shareholders, who saw the Dacian share price plummet 71% from 6 January through to 21 July.

Since that low, the share price has regained nearly 27%, but still remains down nearly 61% in 2020. By comparison, the All Ordinaries Index (ASX: XAO) is down almost 10% year to date.

At the current price of 38 cents per share, Dacian Gold has a market capitalisation of $211 million.

What does Dacian Gold do?

As the name implies, Dacian Gold is a gold producer, based in Western Australia. The company’s 100% owned Mount Morgans Gold Operation is located in a region containing numerous multi-million-ounce gold mines. Gold production at the mine commenced in March 2018. Mount Morgans is supported by Westralia, consisting of the Beresford and Allanson underground mines, and the company’s Jupiter open pit operation.

What’s causing the Dacian share price to rocket?

Dacian’s preliminary September quarter update stated the company had produced 32,799 ounces of gold for the September quarter. It noted this tracks well against its 2021 financial year guidance of 110,000-120,000 ounces. Most of the gold was sourced from Dacian’s Jupiter open pit mine.

Dacian also paid down $25 million of debt in the September quarter. Its total cash and gold on hand as at 30 September stood at $38.5 million. With the company still having a total outstanding debt of $39.1 million, this brings its net debt to $600,000.

Additionally, Dacian’s hedge commitment fell by 23,101 ounces, bringing its hedged position to a total of 61,488 ounces at an average price of $2,114 per ounce. That’s still considerably below the current market price for gold of $2,657 per ounce, but it’s higher than the average price of the company’s previous outstanding hedge position.

Addressing the results, Managing Director, Leigh Junk stated:

This is a great start to the financial year and positions Dacian favourably to meet its annual targets during FY2021. The strong operating performance has translated into a much-improved financial position with total debt and hedge commitments further reduced. I’d like to thank the team for their excellent effort and look forward to continuing the momentum at Mt Morgans.

With the company well on track to meet its production targets, and gold forecast to remain strong, the Dacian share price will be one to watch.

More reading

• 2 ASX shares that every investor should own
• Why the Coles Group (ASX:COL) share price just got upgraded to “buy”
• Why I would buy CSL (ASX:CSL) and this blue chip ASX share
• What investors learnt from the RBA’s rate decision today
• Here’s where you could invest your Woolworths (ASX:WOW) dividends today

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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On Tuesday eligible shareholders of Woolworths Group Ltd (ASX: WOW) will be paid the conglomerate’s fully franked 48 cents per share final dividend.

If you’re planning to reinvest these funds back into the share market, then I would suggest you consider the ASX shares listed below.

Here’s why I think they would be top options for your Woolworths dividends:

Cochlear Limited (ASX: COH)

If you’re looking to invest these funds into a growth share, then you might want to take a closer look at Cochlear. It is one of the world’s leading hearing solutions companies with a growing portfolio of high quality implantable devices.

I believe Cochlear is well-positioned for growth over the next decade and beyond thanks to the extremely favourable shift in demographics globally. According to the World Health Organization, by 2050 there are forecast to be 1.5 billion people over the aged of 65. This will be almost triple the number of over 65s in 2010. I expect this to lead to growing demand for its hearing products and underpin solid earnings growth in the future.

Commonwealth Bank of Australia (ASX: CBA)

If you’re wanting even more dividends, then I would suggest you consider buying this banking giant’s shares. Although the pandemic is certainly hitting the bank hard, I’m confident the provisions it has made will be sufficient. This could mean that the worst is now over for Commonwealth Bank and it is onwards and upwards from here.

Another big positive is the recent news that responsible lending rules will be relaxed. I expect this and a jobs-focused Federal Budget to be a big boost to the banks and could put them on a path to return to growth in the not so distant future. Estimating what dividend the bank will pay is difficult, but I would expect something in the region of 4% fully franked in FY 2021.

More reading

• Why the Coles Group (ASX:COL) share price just got upgraded to “buy”
• Which ASX banking share is the cheapest today?
• ASX 200 jumps 2.6%, big 4 banks surge
• Top broker tipping turnaround in ASX big bank profit margins
• 5 things to watch on the ASX 200 next week

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 Cochlear Ltd. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Cochlear 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.

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In afternoon trade the Afterpay Ltd (ASX: APT) share price is among the best performers on the S&P/ASX 200 Index (ASX: XJO).

At the time of writing the payments company’s shares are up 5% to $83.73.

Why is the Afterpay share price charging higher?

Today’s gain appears to be attributable to a broker note out of Goldman Sachs this morning.

Although the broker has only retained its neutral rating, it has reaffirmed its $93.45 price target.

This price target implies potential upside of approximately 11.5% for its shares over the next 12 months even after today’s sizeable gain.

What did Goldman Sachs say about Afterpay?

Although in September Goldman Sachs believes Afterpay had its weakest month of app downloads in the ANZ market since February 2018, this was in line with its expectations due to the maturing market.

Its data shows that Afterpay and Zip Co Ltd (ASX: Z1P) remain the clear market leaders, with FlexiGroup Limited (ASX: FXL) gaining traction with its humm platform.

Conversely, across in the United States, the broker notes that Afterpay had its strongest month of app downloads in history with approximately ~330,000 downloads.

Based on this, Goldman Sachs estimates that the company now has a user base of ~6.7 million in the United States, which is up from 5.6 million at 30 Jun 2020.

Pleasingly, with November and December typically peak app download months, Goldman believes Afterpay is on track to achieve its U.S. forecast of 7.8 million users in the first half and 10.3 million users for the full year.

Though, it does note that competition is increasing in the key market.

Goldman commented: “We expect competition could become more aggressive and note recent retailer switches include HAUS Laboratories (Lady Gaga’s cosmetic label) moving to Klarna from APT and the Decker Group brands (e.g. UGG, Teva, Hoka) moving to APT from Quadpay. This elevated competition could manifest itself in the form of merchant fee compression and/or co-marketing costs.”

Nevertheless, for now, the broker remains positive on Afterpay’s margins in North America thanks to smaller merchants (which are charged more) becoming a larger portion of Afterpay’s merchant sales mix.

Should you invest?

I think Afterpay is a great option due to its massive global market opportunity.

And due to its recent share price weakness, I feel now could be a good buying opportunity for investors that are willing to make a long term and patient investment.

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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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