With another decline today, the Afterpay Touch Group Ltd (ASX: APT) share price has now fallen over 18% since reaching an all-time high of $8.16 last month.
But one leading broker thinks this is a buying opportunity that investors should be jumping onto today.
According to a note out of Goldman Sachs late yesterday, the broker has retained its conviction buy rating and increased the price target on the payment solutions company's shares to $8.20. This price target implies potential upside of almost 23% for its shares based on the current share price.
Why is Goldman Sachs bullish?
Goldman's analysts have increased the price target on Afterpay Touch's shares after the company revealed that it is looking into expanding its Afterpay platform into the U.S. market. In light of this, the broker has looked into the potential market opportunity it sees for Afterpay in the United States.
To begin with, Goldman has looked specifically at the online apparel and footwear markets, assuming the company will look to replicate its early success in the Australian market.
The U.S. apparel and footwear market was estimated to be worth US$368 billion in 2017 by research firm Euromonitor. Goldman believes around 15% of these sales are based online, implying an online market worth US$61 billion per year. After removing Amazon and eBay from the equation, the addressable market reduces to US$43 billion, which is still approximately 14x the size of the Australian market.
Assuming the Afterpay platform offering is the same as what is offered in Australia, the broker believes it will go down well with U.S. consumers and retailers. It has pointed to an underserviced group of millennials in demand of alternative credit-like products, similar demographics, and a proven track record of increasing basket sizes and conversion rates as the reasons for this.
Overall, Goldman estimates that Afterpay Touch could achieve a 6.5% market share of US online Apparel and Footwear by FY 2021.
What now?
Goldman's price target of $8.20 is broken down into two parts. The first part, its Australian business, is valued at $6.60 per share. And the second part, its U.S. business, is valued at $1.60 per share based on the assumptions above.
So with its shares trading at $6.62 at the time of writing, investors buying Afterpay Touch's share today are essentially getting its U.S. expansion for free. Which I think makes it a great time to snap up shares.
It is still a high risk investment, let's not forget. But one which I think provides investors with a compelling risk/reward.
