The Afterpay Ltd (ASX: APT) share price has continued its poor run and dropped lower again on Thursday.
In fact, at one stage today the payments company’s shares were down as much as 4% to a three-month low of $103.20.
When the Afterpay share price hit that level, it was down more than 35% from its record high of $160.50.
Why is the Afterpay share price at a three-month low?
Investors have been selling Afterpay and other tech shares in 2021 due to concerns over rising bond yields.
Last week the yields on U.S. Treasuries surged to their highest level in more than a year after investors began betting that economic growth and inflation will pick up.
And while bond yields are still relatively low in the grand scheme of things, even small rises can have big impacts on valuations. This is particularly the case for richly valued stocks like Afterpay and rival Zip Co Ltd (ASX: Z1P).
This is because as the risk-free rate rises, the premium that investors are willing to pay to put their money into risk assets decreases.
Is this a buying opportunity?
One broker that that sees the weakness in the Afterpay share price as a buying opportunity is Morgan Stanley.
Earlier this month the broker put an overweight rating and $159.00 price target on its shares. Based on the current Afterpay share price, this implies potential upside of approximately 52% over the next 12 months.
According to the note, Morgan Stanley believes that Afterpay has developed a moat thanks to its merchant marketplace, its strong global brand, and its integrated shopping experience.
In light of this, the broker isn’t concerned by increasing competition in the industry from the likes of Commonwealth Bank of Australia (ASX: CBA).
Ord Minnett appears to agree with this view. At the start of the month the broker reiterated its buy rating and lifted its price target to $150.00.
Its analysts have been pleased with the company’s performance in the UK and United States and believe the Afterpay Money app has a lot of potential.