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Afterpay Touch Group Ltd shares rocket on Goldmans’ view

Shares in, buy now, pay later, shopping business Afterpay Touch Group Ltd (ASX: AFT) jumped 6% higher in morning trade to $5.08 on the back of news reports that analysts at financial services giant Goldman Sachs had slapped a “buy” recommendation on the company.

Goldmans reportedly values the shares at more than $7 and reckons EBITDA could grow 21x between 2017 to 2020, with the group reporting an EBITDA of $1.9 million for FY 2017 after deducting for merger costs and one-off expenses.

Afterpay’s business model of extending consumers short term credit has been incredibly popular with more than 8,600 retailers signed-up and the on-baording rate reported to be accelerating over the most recent quarter. As such the group is starting to build some kind of network effect whereby not offering Afterpay could lead to a retailer suffering a competitive disadvantage.

Whether or not the stock rises to meet Goldmans’ bullish valuation will largely depend on its success or otherwise in starting to turn profits at heathy compound annual growth rates.

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Motley Fool contributor Tom Richardson has no position in any of the 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.