The Afterpay Ltd (ASX: APT) share price was on form again on Thursday and stormed notably higher.
The payments company’s shares were up as much as 14% to a new record high of $75.26 at one stage before closing the day 11% higher at $73.50.
This latest gain means the Afterpay share price is now up a remarkable 817% from its March low of $8.01.
Why did the Afterpay share price rocket higher?
Investors were fighting to buy the company’s shares on Thursday after it was the subject of a very positive broker note out of Morgan Stanley.
According to the note, the broker has upgraded the buy now pay later provider’s shares to an overweight rating and lifted the price target on them by a massive 180% from $36.00 to a lofty $101.00.
Even after today’s strong gain, this price target implies potential upside of over 37% for Afterpay’s shares over the next 12 months.
Why did Morgan Stanley upgrade Afterpay’s shares?
Morgan Stanley made the move in response to Afterpay’s better than expected credit quality and the acceleration in its sales growth.
The broker is expecting the company’s revenue to grow by a compound annual growth rate of 60% through to FY 2022, with a stable net transaction margin of ~2%.
This is expected to be driven by its diversification away from fashion thanks partly to its agreement with eBay, its impending launch into Canada, and its in-store roll out in the United States. The broker expects the latter to strengthen its first mover advantage in the key market.
In addition to this, its analysts note that the company’s capital raising now gives it the opportunity to consider M&A activities and further geographic expansion.
Should you invest?
While it shares are certainly high risk, I continue to believe that Afterpay would be a quality buy and hold investment. This is due to its leading position in a rapidly growing market which is benefiting from structural tailwinds.
All in all, even though its shares are up over 800% from their March low, I don’t believe it is too late to invest.
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Motley Fool contributor James Mickleboro 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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