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Afterpay Touch Group Ltd shares fall on broker downgrade

In morning trade the Afterpay Touch Group Ltd (ASX: APT) share price has continued its poor run and has dropped notably lower for a second day in a row.

At the time of writing the fintech company’s shares are down 4.5% to $5.34. This stretches Afterpay Touch’s two-day decline to over 10%.

Why are Afterpay Touch’s shares falling again today?

While some of today’s decline is likely to be a hangover from its surprisingly weaker than expected quarterly update yesterday, the rest could be attributable to a broker note out of Goldman Sachs this morning.

According to the note, the broker has downgraded the company’s shares from a buy rating to neutral and slashed the price target on its shares from $7.90 to $6.30.

This is the second time Goldman has reduced its price target on Afterpay Touch’s shares in the space of eight days. Last week the broker cut its price target from $8.50 to $7.90.

Goldman has made the downgrade after being left surprised by the company’s sales performance in the third-quarter. Echoing what I said yesterday, the release states that:

“While its 3Q update was solid, what stood out to us was that, sequentially, retailer sales declined (to A$530mn from A$551mn in 2Q) despite strong customer additions, merchant additions and in-store sales coming off a small base in the quarter. This may indicate its usage rates are maturing faster than we previously forecast.”

Source: Goldman Sachs note

As you can see above, this is the first time its sales have fallen quarter-on-quarter and has left me concerned that its Australian business is close to peaking.

Should you buy the dip?

While I think that the recent share price weakness has brought Afterpay Touch’s shares down to more attractive levels, I’m not a buyer of its shares just yet.

Goldman Sachs values its Australian business at $4.80 per share with the remainder of its price target attributable to its U.S. business.

If its shares were to fall to the $4.80 level then I would be snapping them up, but until then I’m going to sit this one out and wait to see how its U.S. expansion goes.

In the meantime, I’ll be looking at fellow fintech share Bravura Solutions Ltd (ASX: BVS) as a potential investment.

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