There are few other stocks that have attracted as much love and loathing as the Afterpay Ltd (ASX: APT) share price. But risks of slowing growth could give the bears the kind of vindication they crave.
The 20% pullback in the shares of the buy now, pay later (BNPL) superstar from last month's record high of $92.48 still leaves the APT share price with a gain of more than 700% from its COVID-19 low in March.
Supporters believe the pullback is healthy and gives Afterpay room to rally again, while detractors point to a long way down for the tech darling.
Slowing growth in the US
This is why a warning from Citigroup about increasing competition and flat growth in Afterpay's US website hits are attracting attention. The US market is a key growth driver for the Afterpay share price.
Citi estimated that there were 10.6 million site visits in August with unique visitors up 1% month-on-month (MoM)to about 4.3 million, reported the Australian Financial Review.
Competitors catching up
There are signs that Afterpay's competitors are also gaining ground while new entrants, including the Commonwealth Bank of Australia (ASX: CBA), are nipping at its heels.
"Further, while Afterpay's Android app downloads increased +10% mom, Klarna regained the top spot with 392k downloads (vs. 351k for Afterpay)," said Citi.
"Klarna and Sezzle saw the strongest increase in website visits in August (up +8% MoM)."
Others feeling the heat?
There are also signs that fellow BNPL darling, the Zip Co Ltd (ASX: Z1P) share price, is coming under pressure.
The broker pointed to the 3% MoM decline in visits to Zip's Australia and New Zealand website in August after a big jump in July.
However, Citi said it's too early to be reading too much into the website stats. Shops have started to reopen in Australia and Zip's falling website hits may be reflecting consumers going in-store to make purchases instead.
Foolish takeaway
Nonetheless, investors should be keeping a close eye on any early warning signs that growth is slowing.
This is because Afterpay and friends are trading on extremely high multiples that can only be justified if they can maintain a breakneck expansion pace (think triple digits) over the next two or three years, at least.
Any signs of cracks in the growth story will see the sector de-rate quickly. This is why buying these stocks now are only for the brave.
And in case you are wondering, Citi's rating on Afterpay is "neutral" while its recommendation on Zip is "sell/high risk".
