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The Afterpay share price is up a massive 700% since March. Is it still a buy?

Investor riding a rocket blasting off over a share price chart
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The Afterpay Ltd (ASX: APT) share price has been on a tear lately. It has rocketed from $8.90 in late March to a high of $77 yesterday before closing at $74.90. That’s an increase of more than 700%!

This growth is being fueled by strong domestic activity and an aggressive overseas expansion strategy.

In light of such a rapid recent rise in the Afterpay share price, is the buy now, pay later (BNPL) provider still in the buy zone?

Impressive fourth quarter growth

Afterpay has continued to perform strongly in recent months. This is despite growing competition from other BNPL providers such as Openpay Group Ltd (ASX: OPY) and Zip Co Ltd (ASX: Z1P).

The company revealed impressive performance across its entire business in a trading update in July.

Underlying sales came in at $11.1 billion during FY 2020. This was up 112% – more than double the sales – on the prior corresponding period (pcp). Underlying sales during the fourth quarter were particularly high at $3.8 billion, more than 127% higher than in FY 2019.

 Growth in recent months has been fueled by the rapid rise of online shopping during the coronavirus pandemic. Afterpay’s BNPL platform is becoming increasingly popular with online shoppers as an alternative to traditional credit card online payments.

Active customer base continues to soar

Afterpay’s active customer base reached 9.9 million during FY 2020. That’s a 116% increase on the prior year.

Growth is being driven by Afterpay’s growing presence in overseas markets. Afterpay’s US customer base reached 5.6 million in June, while the 1 million customer milestone was reached in the UK. During the first quarter of 2021, Afterpay’s expansion into Canada is scheduled to begin, along with the in-store rollout within the huge US market.

Afterpay has flagged FY 2021 as a year of increased investment as it looks for additional overseas investment opportunities to achieve further global scale. This growth will be partly fueled by a fully underwritten institutional placement to raise $650 million. In addition, a share purchase plan is anticipated to raise approximately $150 million.

Afterpay is yet to achieve the breakeven point in terms of profitability. However the BNPL provider is anticipating that its net transaction loss (NTL) will to be up to 38 basis points for FY 2020.

Foolish Takeaway

Despite a strong recent surge in the Afterpay share price, I believe there is potential for still more strong share price growth in the next few years, fueled by the company’s aggressive overseas growth strategy.

Afterpay’s potential to make strong inroads into the large US market in particular is massive. However, with such a strong  share price rise recently, be ready for some potential share price volatility during the short term.

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Phil Harpur owns shares of AFTERPAY T FPO. 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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