Afterpay share price dips 19%: is it a buy?

Afterpay Touch Group Ltd (ASX: APT) has had a phenomenal year. However, due to uncertainty in the global markets, its share price has dropped in the last month. Should you look to buy?

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Afterpay Touch Group Ltd (ASX: APT) has attracted strong growth rates in the year to date (YTD) that have far outshone the market. Its shares boast 93% return on investment YTD, closing at $22.32 yesterday.

However, due to market uncertainty, particularly around global trade, tech stocks have taken a beating. The Afterpay share price is down 19% since its all-time high of $28.46 on 7 May. Its current share price could open buy opportunities for investors who have Afterpay on their watch list.

What does Afterpay do?

Afterpay offers a buy-now, pay-later (BNPL) product that allows users to pay for purchases over four instalments, interest-free. It is arguably the most popular BNPL product worldwide, servicing the likes of Urban Outfitters, ASOS, Levi's and more renowned retail brands.

The company has 3.5 million customers and 23,200 active merchants on its platform. These customers made $2.3 billion worth of transactions with Afterpay, a value that tripled in the half year to December 2018.

Afterpay processes 10% of all physical online retail in Australia. It has altered consumer behaviour in how customers interact with merchants, as well as the expectations of flexible payment in other verticals.

Expansion into US and UK markets

Australia's top fintech company has also made headlines in the United States (US) market, with Urban Outfitters championing the product on its shores. It also received a huge marketing boost from getting the Kardashians' brands live for Black Friday. 

Compared to Australia, the US has a population that is 13x greater, its online apparel and footwear market is 14x bigger and thus the in-store opportunity is 15x more than our domestic market. With its US customer base reaching 1 million in March after just 10 months, Afterpay's US growth has already exceed the pace we have seen here in Australia.

Now, Afterpay's United Kingdom (UK) expansion is in the works. The company intends to use the funds it raised in Australia to fund its initial growth before taking on debt. The UK market also has talent advantages for security specialisations.

Foolish takeaway

Should you buy Afterpay ahead of FY earnings in August? The share price is not cheap. It trades on a 34.12x price-to-sales ratio at 194x 2020 earnings. Similarly, Afterpay is not completely in the clear from a regulation lens.

Nevertheless, a 19% fall in the stock price is a good deal for those who want to profit off Afterpay's growth. It is quickly becoming a global household name, benefiting lucratively from the generations that rely less and less on credit for daily transactions.

If you like Afterpay, here are two other companies you should also consider in the digital payments revolution.

Motley Fool contributor Audrey Thehamihardja 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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