The Afterpay share price rose 7% today

The Afterpay Touch Group Ltd (ASX: APT) share price rose 7% today, making it one of the top performers in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

One of the main reasons for Afterpay’s resurgence today came from the gains in overseas markets. The US S&P 500 Index rose over 3% on Friday and various FAANG shares went up even more including Apple which went up 4.3%, Facebook rose by 4.7%, the Microsoft share price climbed 4.7% and Alphabet shares went up 5.1%.

Our local tech shares generally follow the movements of the FAANG shares on any particular good or bad day.

Rival Zip Co Ltd (ASX: Z1P) also featured in an AFR article today saying that it supports industry-wide responsible lending checks and caps on late fees.

Afterpay has defended its consumer checks, saying “This is a sophisticated algorithm-based technology which identifies likely risk spots both within customer groups and by particular products. As a result, up to 30 per cent of order requests are not approved – this can be as high as up to 50 per cent for first-time customers.

“The accuracy of these checks has ensured a default rate on purchases that is currently less than 1.5 per cent. This has reduced over time, notwithstanding Afterpay’s rapid growth rate, and is about half the default rate of others in the [buy now, pay later] sector who do conduct what they refer to as credit checks.”

Foolish takeaway

Afterpay has made excellent progress with its business growth and revenue. FY18 delivered triple digit revenue growth and positive earnings before interest, tax, depreciation and amortisation (EBITDA) before significant items.

However, it’s now trading at 96x FY20’s estimated earnings, which is too expensive for me to consider buying at.

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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