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Will the Afterpay share price reach $40 in 2020?

Tristan Harrison
APT shares

The Afterpay Touch Group Ltd (ASX: APT) share price has been very volatile this year with a number of negative stories hurting sentiment. Will the share price reach $40 in 2020?

Despite everything that has happened this year, the company’s share price has risen by 139%. If the Afterpay share price grows  another 100% by December 2020 it will reach just over $57. I really doubt we’ll see Afterpay’s share price reach $50, but $40 is definitely achievable.

Indeed, the Afterpay share price reached a high of around $36.50 a couple of months ago. But to get to $40 from here, Afterpay will need to rise by 39%. It’s certainly possible and would definitely be a market-beating performance if achieved.

In the first four months to October 2019, Afterpay achieved underlying sales of $2.7 billion (up 110%). At the end of October it had 6.1 million active customers (up 137%) and 39,450 active merchants (up 96%). Business growth is strong. 

In November 2019 it achieved $1 billion of underlying sales, 0.5 million net new customers and it finished with 6.6 million customers with 42,500 active merchants. Black Friday and Cyber Monday broke records for a number of statistics including underlying sales and new customers.

It’s easy to imagine that if Afterpay keeps growing its underlying sales by more than 100% a year then the share price will keep climbing fast because many investors aren’t forecasting that level of sustained growth.

But, Afterpay may be able to achieve that level of growth because it’s rapidly adding customers in the US and the UK, two huge markets for the buy now, pay later business. Afterpay’s stats show that the longer a customer remains active with Afterpay, the more frequently they buy and the lower Afterpay’s losses are from that customer (bad customers are cut off from the service). It’s those recurring customers that are integral for sustained profitability in the future. 

However, one thing to watch next year will be the RBA inquiry into the buy now, pay later sector, new rules could dampen growth.

Foolish takeaway

Afterpay is generating enormous growth of underlying sales, but we’re yet to see that translate into a net profit after tax. But, profit could soon become reality as the UK and US markets mature. It wouldn’t surprise me at all to see Afterpay’s share price reach $40 in 2020, but I wouldn’t bet on it either.

The post Will the Afterpay share price reach $40 in 2020? 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. 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