Is the Afterpay Ltd (ASX: APT) share price a buy at $44?
Amazingly, the Afterpay share price has risen by 400% over the past two months from the coronavirus price of $8.90 on 23 March 2020. That's some recovery.
Perhaps some investors thought that the Afterpay model was about to come unstuck. Maybe they thought that every active customer wasn't going to pay their most recent balance. Clearly that wasn't the case.
Afterpay has managed to keep growing despite the worries about the worrying coronavirus economic conditions. I think Afterpay has done the right thing by adjusting its risk settings so that it's a bit more cautious during this period.
The third quarter of FY20 still saw solid growth with total underlying sales growth of 105% compared to FY19. Within that, US growth was 263% and ANZ growth was 40%.
April saw average daily underlying sales growth of approximately 10% globally compared to the second half of March. Promising signs of a recovery.
Afterpay US recently announced that it has passed 5 million active customers.
Not all easy for the Afterpay share price
I fear that investors may be thinking that Afterpay is unstoppable now. It's true that the buy now, pay later business has revolutionised how people pay in instalments (for no cost). But plenty of competition don't want Afterpay to have all the limelight.
Global ecommerce player Shopify is launching 'Shop Pay Installments'. Shopify said that "buyers will be able to pay for purchases in four equal payments over time, with no interest or fees. Merchants will receive the full purchase amount upfront, and Shopify will collect the remaining installment payments, meaning there's no risk to merchants. This flexible payment option will allow buyers to stretch out their payments, making purchases more convenient. This, in turn, will help merchants increase cart sizes and overall sales." This could cause trouble for the Afterpay share price.
At $44 I think the Afterpay share price is far too optimistic and assumes the company won't have to reduce margins to maintain market share in the future. Even if I were interested in buying Afterpay shares, I wouldn't remotely want to buy above $40.
