In afternoon trade the Afterpay Holdings Ltd (ASX: AFY) share price has been one of the biggest movers on the market after it announced a two-year contract with retail giant Myer Holdings Ltd (ASX: MYR).
At the time of writing the shares of the explosive payments company are higher by 6% to $2.33.
The contract will see Afterpay’s popular buy now, receive now, pay later service made available initially on its online store from the fourth quarter of FY 2017.
I think the word initially stands out in today’s statement. Whilst the roll out onto Myer’s online store could prove to be very lucrative for Afterpay, I believe having the service available on Myer’s shop floor would be even better.
Myer is just the latest in a range of retailers adopting Afterpay’s service. Other notable companies using its service include Telstra Corporation Ltd (ASX: TLS), Super Retail Group Ltd (ASX: SUL), Lorna Jane, and Cotton On.
But is it a buy?
Whilst I think Afterpay has an incredibly bright future ahead of it, I’m holding off an investment at this point in time due to its planned merger with Touchcorp Ltd (ASX: TCH).
As I’ve said previously, my main concern is with Touchcorp. While the Afterpay business has been growing like wildfire in the last 12 months, the Touchcorp business has been a huge disappointment.
If Touchcorp isn’t able to successfully leverage Afterpay’s network, I am concerned that it may ultimately act as a drag on Afterpay’s explosive growth.
As Afterpay’s shares come at a significant premium to the market average, any slowdown in growth could result in a big hair cut for its share price.
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Motley Fool contributor James Mickleboro has no position in any 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 Bruce Jackson.
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