Will Afterpay continue to defy the sceptics?

A volatile history

On Wednesday – buy now pay later juggernaut Afterpay (APT) closed out the session at $43.46 per share. At that price, the tech darling had an implied market capitalisation of $11.61 billion.

Afterpay, ever prone to volatile price swings and intraday sentiment shifts, has seen its share price trade wildly since its listing in 2017. Overall though, the company’s trajectory (thus far) has been mostly onwards and upwards.

In March though, amidst the throes of the coronavirus-led market panic, even the seemingly most devout investors took to dumping their APT positions, as the company saw its share price decline ~80%.

From 20 February, where the stock traded north of $40 per share, Afterpay bottomed-out at an intraday low of $8.01 per share on 23 March.

The likes of UBS – who have long held a bearish view on Afterpay surely felt vindicated. Those same analysts still have a Sell rating and a lowly price target of $13 on the stock.

And on a particularly volatile March day, where APT range traded between $10.90 to $16.00 per share, others in the market even said they’d continue shorting the stock.

Indeed, at these bottoms the worries were logical: with retail stores shuttered; the impetus to buy discretionary items assumedly lowered; and Afterpay’s target demographic potentially one of the most impacted groups as a result the pandemic – investors were likely concerned that APT’s all-important growth trajectory would start to come undone (or, seemingly a less important factor to the market, that the company’s bad debts may spike).

Yet when Afterpay provided the market with a business update in April, not only did the company say that growth had remained strong, but management also took the opportunity to proudly declare that 'March was the Group's third largest underlying sales month on record' where 'Q3 FY20 underlying sales increased 97% on Q3 FY19.'

Afterpay, after all, has a habit of defying the sceptics.

That business update was followed by the after-market revelation that Chinese tech giant Tencent had built a ~$300 million, or 5% stake in Afterpay.

When trading resumed during the next session, the stock climbed as much as 35%.

Afterpay share price: the bulls, bears and somewhere in between

Looking at a cross-section of analyst commentary from the last month or so – Morgan Stanley, who broadly has cautious but nonetheless bullish stance on Afterpay noted that:

'We think APT's recent re-rating is justified by faster customer payment terms, app downloads in the US edging ahead of Klarna and longer-term potential from a Tencent partnership.'

Of course, the investment bank also warned that 'we still think APT has to trade-off revenue growth to contain credit risk, and April US fashion spending is falling.’

Morgan Stanley is currently Equal-weight APT with a price target of $36.00.

Elsewhere, Bell Potter, which currently has a Buy rating and a lofty $45.95 on Afterpay, noted that the company’s recent trading update ‘has addressed many of the [market’s] key concerns, and proven that its operations are more robust than some give it credit for.’

Bullish or not, the broker still cautioned investors by saying:

‘We believe it is too early to say how the next few months will play out and remain relatively cautious in our forecasts, with little change despite the positive trading update.’

In response to that initial question then: Bell Potter’s price target implies that Afterpay has room to defy the sceptics a little more; Morgan Stanley’s suggests that the market may have got somewhat ahead of itself; while UBS’s Sell rating and price target of $13.00 suggests something of an entirely different quantum.

Afterpay (APT) opened a shade lower on Thursday, 14 May, dropping to $41.89 in the first ten minutes of trade. The ASX was also down.

How to trade Afterpay

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For example, to buy (long) or sell (short) Afterpay, follow these easy steps:

1. Create an IG Trading Account or log in to your existing account
2. Enter 'Afterpay' or 'APT' in the search bar and select it
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade