Is the Afterpay Touch Group Ltd (ASX: APT) share price a buy?
The last month alone has been a big rollercoaster for the Afterpay share price with it ranging between $20.27 and $27.83, a difference of 37% – which you could have earned in just 10 days if you bought at the right time.
The buy now, pay later business has been a whirlwind of news updates recently.
Almost a month ago Afterpay revealed that underlying sales were approximately $4.7 billion in the 11 months to 31 May 2019, which was 143% higher than the prior comparable period with 4.3 million active customers and 30,600 active merchants (up 32% from 31 December 2018).
One of the main pleasing things about that business update was that Afterpay maintained its gross loss, net transaction loss and net transaction margin at a similar level to the December 2018 half-year. This is good news considering how rapidly Afterpay is growing in the US.
Afterpay then raised $317.2 million in a capital raising to fund its near-term growth, with its management also selling down a sizeable portion of their shares.
However, we then learned that AUSTRAC was looking at the company's anti-money laundering / counter terrorism financing (AML/CTF) program. It wants Afterpay to appoint an external auditor to look at the period from 19 January 2015 to date. Will this increase Afterpay's costs going forwards? Will it be required to do more verification? Will it be given a fine? Who knows?
Visa then announced it was working on an instalment payment option which could be bad news for Afterpay, sending the share price downwards.
Finally, at the start of this week the company announced board and other management changes to reflect the global nature of the business.
After all that, the Afterpay share price is back to close to its all-time high, so it seems investors haven't been deterred.
Foolish takeaway
But, I'm getting quite nervous about how much competition that Afterpay is facing, particularly from the large payment businesses of PayPal, Visa and MasterCard. There is also more talk that retailers may challenge the high percentage merchant fee that Afterpay charges if a growing number of customers are returning rather than attracting new businesses.
It's currently trading at 97x FY21's estimated earnings, which seems very expensive with the risks mounting. However, if Afterpay delivers on its promise then this valuation might not be too bad, particularly with lower interest rates. I'm not a buyer though.
