Why Goldman Sachs rates Afterpay shares as a buy

The Afterpay Touch Group Ltd (ASX:APT) share price is on the Goldman Sachs conviction buy list. Here's why…

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In morning trade the Afterpay Touch Group Ltd (ASX: APT) share price is up 0.5% to $15.32.

This small gain has stretched the payments company's 12-month gain to a whopping 97%.

Is it too late to buy Afterpay shares?

According to one leading broker, it isn't too late to buy shares.

A note out of Goldman Sachs reveals that its analysts have a conviction buy rating and $19.25 price target on the company's shares.

This price target implies potential upside of almost 26% for its shares over the next 12 months.

Why does Goldman rate Afterpay as a buy?

As well as being impressed with its performance so far in FY 2019, there are a number of reasons that Goldman is bullish on Afterpay.

One is its belief that company has a massive opportunity in the U.S. market. It has previously noted that the: "population size difference between the two countries is such that the addressable population in the US is almost 13x bigger, the online Apparel and Footwear market is 14x bigger and the instore opportunity is around 15x than the Australian market."

It also sees a lucrative opportunity in the UK market. It has previously forecast the company being almost breakeven in the UK in FY 2020 and then generating $33 million in EBTDA there in FY 2021.

Another often overlooked reason to be positive is the repository of transaction data that the company is accumulating.

Goldman believes that this data has the potential to create value in two important ways. One is by rapidly improving its credit assessment platform and the other is the potential for it to be used to develop value add services in the future.

Should you invest?

While Afterpay Touch is certainly a high risk option, I agree with Goldman and believe it could be a great long-term investment along with fellow tech stars Altium Limited (ASX: ALU) and Appen Ltd (ASX: APX).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and Appen 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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