Why is the Afterpay (ASX:APT) share price up 10% in just 2 weeks?

There may be a simple explanation.

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The Afterpay Ltd (ASX: APT) share price is having a fortnight to remember.

At close of trade yesterday, shares in the buy now, pay later (BNPL) service are trading for $126.64 – up 3.3% on the previous day and 10.4% over the last 2 weeks. Compared with the S&P/ASX 200 Index (ASX: XJO), which is up 2.3% in the same time, it is a rather impressive feat.

So, what’s going on? Let’s take a closer look.

Why the Afterpay share price is rising?

As most people may be aware, Afterpay is being acquired by fintech giant Square Inc (NYSE: SQ) for what was, at the time, $39 billion.

The deal is entirely in scrip. For every 1 Afterpay share an investor owns, they will receive 0.375 shares of Square. At the time, Square shares were worth US$247.26, implying a transaction price of $126.21 per Afterpay share.

Since then, the Square share price has been on the rise. Just in the last 2 weeks, shares in the company have appreciated 10.4%. Taking into account fluctuating exchange rates between the US and Australia, it pretty much matches the rise in the Afterpay share price.

This makes sense. Afterpay now has a fixed value, and that’s 0.375 times the value of Square’s shares. Afterpay shares will move in the same direction, and at the same rate, as those of its soon-to-be buyer.

The deal will not be finalised until the third quarter of FY22, so this should continue for some time to come.

So why is the Square share price lifting?

As explained by The Motley Fool, the Square share price is on the rise because of expectations.

The company is due to report its Q3 earnings next week, and analysts are tipping them to be a stellar result for the company. The Motley Fool Australia’s own Scott Phillips likes to say earnings season is more about expectations than results. Investors think Square is going to report good results and want to get on that gravy train early.

And if Square is doing well, then the Afterpay share price is doing well.

Should you invest $1,000 in Afterpay right now?

Before you consider Afterpay, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Afterpay wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and Square. The Motley Fool Australia owns shares of and has recommended 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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