The Openpay Group Ltd (ASX: OPY) share price plunged 11.4% lower in Wednesday’s trade. That’s a big drop for an ASX share that surged 35% higher on Monday and a further 10.3% on Tuesday.
So, despite all the craziness in the market right now, here are 3 factors that are good for the Openpay share price.
1. There’s strong momentum behind buy now, pay later shares
It’s not just the Openpay share price rocketing higher right now. The Afterpay Ltd (ASX: APT) share price has slumped 5.5% this week but is still up 132% for the year.
It’s been a similar story for fellow BNPL rival Zip Co Ltd (ASX: Z1P). The Zip Co share price has fallen 16.2% from its record high at the start of the week but is still up 85.6% in 2020.
Clearly, investors have been piling into the Aussie BNPL shares lately. I think that means there could be a strong momentum factor at play right now. Given this week’s downwards moves for its rivals, that could be good news for the Openpay share price.
2. Afterpay’s share price multiples are astronomical
While Afterpay remains the largest ASX BNPL company by market capitalisation, it’s also very expensive.
It’s important to note that Afterpay hasn’t actually turned a profit. That means investors are speculating on future growth rather than relying on current dividends.
As a result, it’s better to use a price to sales (P/S) ratio to evaluate the Afterpay share price. Yahoo Finance has Afterpay trading at a P/S ratio of 57.1 right now compared to 25.2 for Openpay.
According to a recent article in the AFR, Afterpay’s P/S ratio is even higher than other global tech stocks like Netflix, Telsa, Uber, Spotify, and Snapchat.
3. The Openpay share price is underpinned by strong growth
Clearly investors have been keen to snap up BNPL shares this year. However, Openpay has continued to thrive despite the coronavirus pandemic hitting the economy hard.
The Openpay share price surged in early trade yesterday before plummeting 11.4% lower at $3.88 per share. That’s despite a quarterly business update headlined by record growth in a number of headline growth metrics.
Some of the key numbers from the update are listed below:
- Active plan numbers up 229% relative to prior corresponding period (pcp)
- Active customer numbers up 141% relative to pcp
- Active merchants up 52% relative to pcp
- Total transaction value up 98.2% to $192.8 million for FY20
- Net bad debts down to 2.9% compared to 4.7% in Q3 FY20
- Cash on hand of $70.1 million as at quarter-end
Will I be buying Openpay shares?
These are just a few reasons why the Openpay share price could be a better relative buy compared to Afterpay right now.
Investors are starting to call BNPL shares a ‘bubble’. I agree that there are plenty of reasons to be wary of investing in the industry right now.
The reaction to yesterday’s record growth numbers gives an indication of just how much is expected from the BNPL shares. I personally want to see more positive cash flow before buying in in the current market.
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Returns as of 6th October 2020
Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. 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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