It certainly wasn’t a great start to the week for the Openpay Group Ltd (ASX: OPY) share price.
The buy now pay later (BNPL) provider’s shares started the week with a disappointing 6% decline to $2.15.
This means the Openpay share price is now down 30% over the last six months.
Is this a buying opportunity?
One leading broker that appears to see the weakness in the Openpay share price as a buying opportunity is Shaw & Partners.
According to a note from late last week, the broker has reaffirmed its buy (high risk) rating and $5.00 price target.
Based on the current Openpay share price, this price target implies potential upside of 132% over the next 12 months.
Why does the broker think the Openpay share price is dirt cheap?
Shaw & Partners recently attended Openpay’s investor briefing and came away from the event feeling very bullish on its long term growth outlook.
The broker commented: “Investor Briefing highlighted the very significant opportunity available to OPY in the US, notably: (1) multi-billion dollar TTV potential vs. current $165m TTV from Australia/UK at end of December 2020; and (2) the clearly differentiated offering to its homogenous “pay-in-4” and short term (<2 months) peer offering (much higher ATV, longer 2-24 month tenure, non-Retail vertical focus on Health/Auto/Home, older demographic, etc.).”
What is its market opportunity?
The broker estimates that the total addressable market for BNPL is US$6.5 trillion, with Openpay’s offering targeting ~15% of this.
This equates to a massive US$829 billion target market. This comprises US$379 billion Big-Ticket Retail, US$218 billion Health, US$78 billion Home, US$89 billion Education, and US$65 billion Auto.
Its analysts commented: “A “back-of-the-envelope” sensitivity by Shaw and Partners with respect to the potential revenue impact of US penetration(market share vs. gross revenue yield) highlights that this significant scale, opportunity and revenue runway, based on relatively conservative assumptions, could potentially yield a quantum leap in revenue generation.”
Positively, the broker notes that Openpay is well-funded to meet and support this rapid acceleration.
Overall, given its strong long term growth potential and attractive valuation in comparison to Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P), the broker believes the Openpay share price is trading at an “attractive” level today.
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James Mickleboro 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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