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Is the Afterpay share price going to hit $40 in 2019?

Tristan Harrison
Rocket soaring through sky

The Afterpay Touch Group Ltd (ASX: APT) share price has risen 24% since 6 November 2019 after the buy now, pay later business released two pieces of news.

It only needs to rise another 24% to hit $40, so it’s not out of the question at all depending what happens over the next few weeks. Afterpay’s previous all-time high share price was above $36 a couple of months ago.

The company gave an impressive business update a couple of weeks ago for the four months to October 2019 compared to the four months to October 2018.

Underlying sales were up 110% to $2.7 billion, active customers rose by 137% to 6.1 million and active merchants increased by 96% to 39,450. Current annualised underlying sales are in excess of $8.5 billion and Afterpay added 15,000 new customers per day in October.

Perhaps more importantly, the stats show that purchasing frequency, loss rates and customer lifetime value are improving the longer that customers are on the platform.

For example, customers who joined during FY15 to FY17 are now purchasing on average approximately 22 times a year. Compare that to FY18 and FY19 joiners who are purchasing on average 14 times and seven times per year.

It’s this growth of regular customers and custom that will help grow profit margins at Afterpay. An agreement with Mastercard in Australia and New Zealand will support its mid-term growth.

The lodging of the final audit report for AUSTRAC has also given the Afterpay share price a boost. Whilst the external auditor did note there had been historical non-compliance with anti-money laundering and counter-terrorism financing laws, he praised the current setup of Afterpay and that it’s now compliant.

Foolish takeaway

Afterpay is delivering excellent growth in Australia, New Zealand, the US and the UK. There are plenty of Afterpay bulls who believe the business on track to be a global star, but I’m not sure it will be as easy as that with more competition from the likes of Zip Co Ltd (ASX: Z1P), as well as higher regulator scrutiny.

The company could easily hit a share price of $40 this year with enough investor sentiment, but it’s not for my own portfolio.

The post Is the Afterpay share price going to hit $40 in 2019? appeared first on Motley Fool Australia.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019