The Afterpay Touch Group Ltd (ASX: APT) share price fell almost 9% today as it dropped to $11.76.
Afterpay wasn’t the only one having a tough day.
The Xero Limited (ASX: XRO) share price fell 5.3%.
The WiseTech Global Ltd (ASX: WTC) share price dropped 1.6%.
The Altium Limited (ASX: ALU) share price declined 1.2%.
Afterpay has been one of the most volatile businesses I’ve seen worth more than $2 billion.
It’s generating excellent underlying growth with Afterpay revenue and other income up 302% to $116.8 million in FY18.
The Afterpay expansion is going very well with over $115 million of underlying sales to the end of October 2018. It has transacted with over 300,000 consumers and 900 retailers in the US with a further 1,300 retailers in the pipeline having agreements to go on the platform.
I was particularly pleased to see that Afterpay was expanding into other categories in Australia beyond retailing such as dentistry and optometry. This materially increases Afterpay’s addressable market.
However, Afterpay faces two problems. Rising interest rates hurt high-valued growth shares like Afterpay.
The other problem is that Labor has created an inquiry to look into short-term debt businesses. Investors worried over shares like Cash Converters International Ltd (ASX: CCV) and Credit Corp Group Limited (ASX: CCP).
Afterpay management has argued that it is unique compared to its competitors in that it is a free product for customers if payments are made on time, it doesn’t charge interest and it doesn’t charge setup or account-keeping fees.
I agree with Afterpay that it is different. Indeed, its competitors may be hurt more and therefore it could bet a net beneficiary.
However, as the banking Hayne Royal Commission that hasn’t finished and the Aged Care Royal Commission which hasn’t even started has shown, investors are quick to sell on bad news.
Until the inquiry is over I don’t think it’s worth investing in Afterpay because it’s still trading at 89x FY20’s earnings. There is a lot of optimism still built into the price.
Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, WiseTech Global, and Xero. 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.