Afterpay (ASX:APT) stunned the entire market after hitting a new all-time high of $75, resulting in a 725% rise in three months. APT’s recovery from COVID-19 instantly caught the eyes of many investors. However, doubt crept in that Afterpay’s growth mimicked that of a bubble. The entire BNPL is surging like a missile. Making many investors wonder if the bears got it wrong and whether they should jump on the rocket before it truly takes off. In saying that, let us get to the bottom of the Afterpay, and more importantly, BNPL speculation.
Table of contents 1. Why is Afterpay up? 2. Is the BNPL industry a safe bet? 3. YIG breakdown of APT
Why is APT up 725% in just a few months?
The initial rebound came from the forced recovery from the 23rd of March. Thus, most investors did not bat an eye-lid as APT rose back up to its pre-COVID 19 levels. Investors instantly began to scream a bubble is forming when APT, and the rest of the industry soared past their pre-coronavirus levels. However, it does makes sense that a stay at home economy would catapult Afterpay into financial heaven. Everyone was at home, and the urge to purchase items on credit was at its peak. Not to mention not having to make interest payments makes BNPL an attractive credit source.
Also, more investors are flooding the market now than at any point in human history. Humans gravitate towards the familiar. Hence, when new investors entered the market, investing in the known, relatively cheap, and emerging companies such as Z1P and Afterpay only seemed natural. Overall the tsunami of new investors combined with FOMO, and a growing digital economy is a recipe for BNPL success.
The recent growth of APT reflects their astronomical business growth, recent audited financials, and BNPL fever. Afterpay experienced a 112%, 116%, and 72% increase in sales, customers, and merchants respectively for FY20. Ultimately, signifying strong businesses growth, causing the bulls to rally behind the BNPL giant. Also, the BNPL industry represents the saying a rising tide lifts all boats to a T. When Zip Co, Split it, or Openpay surge Afterpay also seems to rise despite not announcing anything new. For example, today Sezzles announced their strong FY20 financials, which caused APT to rise 11%.
Afterpay and the post-COVID-19 market
The world is well and truly in the information age, and there is no going back. Businesses that have thrived off the digital economy so far, such as Netflix, Amazon, and Afterpay, should continue to rise(opinion not advice). Buy-now-pay-later, whether you love it or hate it, is now embedded in the digital banking industry. Digital banking should experience an upward surge in customers, funding, and partnerships from here on out. Especially, as digital businesses are an integral part of many nations post-COVID/recession recovery plan. Thus, many investors see APT as a smart investment as they expect Afterpay to remain the industry captain of BNPL.
YIG breakdown APT for investors
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Short answer: Investing in Afterpay could potentially pay-off in the short-term. However make sure your investment reflects your financial interests and not just because everyone is investing in APT. (opinion not advice)
Short term Investment
Over the past few months the BNPL industry has revealed two key times for investors to enter. These include riding the momentum of another companies price sensitive event or entering off a pullback after the announcement. First, use the rising tide to your advantage. So far, Sezzles, and Split it payments have posted their FY20 financials. When Zip co, Afterpay, or Openpay post their results BNPL fever will could go out of control (opinion not advice).
Secondly, it seems investing at the open while trying to capture a short-term profit swings the odds against your favour. At the bell APT experiences high volatility. Thus, it is best to wait for a pullback before cementing your position. However, investors must understand that the COVID-19 fear is still lurking below the surface. Meaning that the bears could come out of the woods again, clawing off any capital gains you might have made.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG