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Is the Afterpay share price a buy?

Is the Afterpay Touch Group Ltd (ASX: APT) share price a buy?

The Afterpay share price is down over 4% at the moment, following on from a tough day for the US share market. Since 7 May 2019, the Afterpay share price has fallen over 15%, so I think it’s a fairly good idea to consider whether it’s time to buy at this lower price.

Afterpay is the leading buy now, pay later business in Australia. It is ahead of its competitors Zip Co Ltd (ASX: Z1P) and FlexiGroup Limited (ASX: FXL).

But there are a few things that put it far ahead of local competitors in terms of market cap and profit growth potential in my opinion. Afterpay is growing in the US and has plans to grow in the UK too, which significantly increases the total addressable market of the company.

The other main thing that Afterpay is doing is expanding into other industries such as optometry, travel and dentistry. The optionality of what Afterpay can do with its system is very attractive.

However, with the share price doubling since the start of 2019 I’m unsure how much of a good buy it would be today.

Investing in things when they are ‘hot’ is generally not the best time to buy. I am also concerned by the news that Afterpay does not own 100% of the US Afterpay Inc. Is the same arrangement going to occur in the UK and therefore ASX investors won’t get the full benefit of that growth? There could be a bit more transparency in this regard.

Foolish takeaway

Afterpay is ‘investing’ heavily in its growth but profitability is still a while away. There is a growing amount of competition wishing to steal some of Afterpay’s thunder like Splitit Ltd (ASX: SPT) and overseas competitors. If the BNPL industry is a winner-takes-all sector then Afterpay could be the one to win with how much brand power it already has, but if everyone is going to get a piece of the pie then Afterpay may not be worth such a high multiple of its revenue.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited. 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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