The Afterpay Ltd (ASX: APT) share price is pushing higher again on Monday.
At the time of writing the payments company’s shares are up 1.5% to $73.40.
Can the Afterpay share price go higher from here?
While I don’t think the Afterpay share price run is over, one leading broker feels its shares may have now peaked.
According to a note out of Goldman Sachs, its analysts have retained their neutral rating and lifted the price target on Afterpay’s shares by 172% to $70.15. This price target implies potential downside of 4.4% for its shares.
What did Goldman Sachs say?
The broker has lifted its estimates for Afterpay following its stronger than expected performance in the fourth quarter and FY 2020.
For FY 2020, Afterpay expects to report underlying sales of $11.1 billion from its 9.9 million active customers. This was materially more than Goldman Sachs was expecting.
In respect to its valuation, Goldman explained: “We move to a Fundamental valuation (70% weighting) driven by a DCF valuation of A$63.95 (WACC 8.9%, TGR 2.5%) while our M&A valuation remains a 30% weighting (A$84.75).”
“Our 12m target price moves to A$70.15 (from A$25.75). As the implied downside is 3% we make no change to our Neutral rating. Note our forecasts do not capture any further international markets or M&A, both of which were indicated to be a focus for APT.”
What about the future?
Although it feels its shares are fully valued now, it certainly does have a bullish view on Afterpay’s long term prospects.
The note reveals that Goldman Sachs is forecasting Afterpay to achieve $151 billion in underlying sales by FY 2030.
This is expected to be driven by structural tailwinds such as the acceleration in migration to ecommerce, the decline in the use of cash, and potential changes in consumer debt preferences.
All in all, it expects this to lead to Afterpay having 47.8 million active customers across its three key regions transacting 20x per annum by 2030. The latter compares to ~14.5x per annum by its ANZ customers in FY 2020, which is up 22% year-on-year.
Should you invest?
While better entry points may present themselves in the coming months, I would still be a buyer of Afterpay’s shares today.
I think the company is well on its way to becoming a real force in the payments industry, which could make it a great buy and hold option. Though, given the premium its shares trade at, I would limit an investment to just a small part of your portfolio.
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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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