Shares in fintech startup Afterpay Holdings Ltd (ASX: AFY) have tripled in value since hitting the ASX boards back in May 2016 to climb above $3 this week. The company’s technology lets apparel shoppers buy goods and pay later in quarterly installments at no additional markup above the original purchase price.

Afterpay even agrees to wear the credit risk in the event of a consumer defaulting on their purchase and unsurprisingly high-street retailers are signing-up in quick time to use the technology. The company already has popular retailers like General Pants Co, Veronika Maine, Tony Bianco, Marcs, Aquila, CUE and Zanerobe among its clients and today announced the signing of discount fashion giant Topshop (Australia) to its client roster.

At Topshop Topman the technology will be available to online and in-store shoppers across its nine stores in Australia and Afterpay will likely be targeting other global fast-fashion phenomenons like H&M, Zara and Uniqlo that have recently arrived on Australian shores with big growth plans.

The main attraction of the technology to Afterpay’s retail clients is that it helps drive sales higher as shopaholics tend to buy more when given the option of paying in quarterly instalments interest free. Given Afterpay wears the default risk there’s little downside for the retailers or shoppers, which means Afterpay’s main challenge is in turning a consistent profit.

Financials

For the full year ending June 30 2016 the company pulled in revenues of $1.4 million on underlying Afterpay sales of $37.4 million to log a total loss around $3.5 million. However, in the final quarter of FY16 revenues were $0.8 million suggesting its growth is accelerating rapidly as the client sign ups rocket to hit more than 600 at financial year end.

Afterpay also stated at its full year report that “recent experience post year-end indicates an annualised underlying sales rate of $150 million.” It had no debt and cash on its balance sheet of $19.7 million as at June 30 2016.

Investors then can see why the share price has tripled in under six months and the company’s valuation around $185 million looks reasonable given the growth forecasts and potential to start turning a profit within its current cash balance.

The key risks remain the competitive environment, new technologies, fraud, and customers defaulting on their payment obligations to leave Afterpay underwater on some of its receivables. In fact a key metric to watch is net transaction loss experience on underlying sales, which came in at 0.9% for FY16.

The Afterpay system was developed by payment processing business Touchcorp Ltd (ASX: TCH), which still owns around 30% of Afterpay with Touchcorp’s chairman and ex-CEO both on the board of Afterpay. More conservative investors may prefer to buy shares in the more established Touchcorp, while others that don’t mind a bumpy ride could go shopping for Afterpay shares.

CLOSING TONIGHT AT MIDNIGHT! -- Here's what happened to The Motley Fool's massive $1 million ASX bet...

Less than three years ago, Motley Fool boss Bruce Jackson bet $1,000,000 of company money (plus $500,000 of his own family's cash) on one unique service known as Motley Fool Pro. Now Pro is up a staggering 89%, darn near DOUBLING members' money! Simply click the link below to get a sneak peek at Pro's 3 biggest winners... the "golden egg" stocks that have powered Pro to 89% returns! Fair warning: Your special time-limited invitation won't wait.

Discover the 3 "golden egg" stocks - and your invitation!

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of TOUCHCORP 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 Bruce Jackson.