Afterpay Touch Group Ltd (ASX:APT) share price finishes Friday up 6.3%

The Afterpay Touch Group Ltd (ASX: APT) share price finished today up 6.3%. Earlier today it was up by 20% at one point.

Shareholders in Afterpay can celebrate this weekend after an incredible 30.7% gain over the past two days.

So why the big jump?

Yesterday Afterpay told the market that it processed more than $2.18 billion of underlying sales in FY18, which was 289% more than FY17.

The amount of sales processed in the June 2018 quarter was $736 million, a 39% jump compared to the March 2018 quarter.

Afterpay boasts of having more than 16,500 retailers and over 2.2 million customers. This is a huge swathe of the Australian population. Afterpay said it now processes more than 10% of all physical online retail sales.

The expansion in the US is already going well with over 400 retailers and it has already done $11 million of underlying sales.

Is the sky the limit?

Afterpay is now approaching an Amazon-like valuation. That’s not to say it’s as powerful a business as Amazon, but there is so much optimism built into the share price that investors today are pricing in market-leadership and large future profit growth. What happens if a well-financed competitor comes along?

The business could go on to win 10% of US physical online retail sales – imagine how big of an opportunity that would be! The US isn’t the only country out there. The UK, Canada and so on are further growth options.

But, ASIC isn’t blind to this. It recently announced that it was going to look at the buy now, pay later sector. If the regulator changes the rules it could hurt Afterpay somewhat, but I don’t imagine ASIC would want to drastically change the market due to Afterpay’s popularity.

The main potential problem is the strength, or weakness, of Afterpay’s customers. It’s all okay in this environment with a strong job market, but will the millennial-centric business cope if people aren’t able to pay on time? It’s hard to know.

The momentum is certainly with Afterpay at the moment, but long-term investors will need significant profit growth every year from FY19 onwards to justify the current price. But, Afterpay could continue to impress the market. It’s not my type of investment, but growth investors could still do well with it over the next five years.

Another investment on course to create excellent returns for investors is this top ASX stock that is predicting profit growth of 30% in FY18 alone.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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