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Is this a buy the dip opportunity for Afterpay shares?

Sebastian Bowen
Payment Technology

After hitting $27.18 just two weeks ago, Afterpay Touch Group Ltd (ASX: APT) shares have tanked more than 13.5% since that time – opening today at $23.39 and creeping up slightly to $23.51 at the time of writing. So is this a buy-the-dip opportunity for Afterpay – a stock that has time and time again rewarded investors handsomely who have jumped in on the dips?  

What’s happening with Afterpay?

Things are still very much looking up with Afterpay. In a press release put out last Friday, the company announced its biannual two-day ‘Afterpay Day’ sale will take place in the United States (US) on August 14 and 15. Afterpay is celebrating gaining more than 2 million active Afterpay customers in the US, despite only launching last year. The company can boast partnerships with more than 6,500 US retailers, which (according to Afterpay) collectively represent “more than 10% of the online fashion and beauty industry in the U.S.” As its last Afterpay Day sale resulted in a sales volume increase of 110% over the two days, the company can reasonably expect (in my opinion) to at least match if not succeed this performance.

Is Afterpay a buy today?

The successes of Afterpay in the US are significant. Although back home there are several competitors to Afterpay in the buy-now, pay-later (BNPL) sector such as Zip Co. Ltd (ASX: Z1P), none have dented Afterpay’s status as the industry leader – and I have yet to hear anyone say ‘just Zip it’ on a BNPL purchase.

If Afterpay can achieve this level of branding power over in the US, I think its dominance will be cemented and events like ‘Afterpay day’ are of great importance to this goal.

Saying this, although the shares have taken a big hit, they are still priced to perfection (in my opinion). Afterpay has yet to turn a profit but the market is placing a valuation of nearly $6 billion on the company at today’s prices.

Foolish takeaway

I won’t be buying Afterpay shares anywhere near today’s prices until I can see either a cemented market-leading position in the US and UK markets, or a clear and sustainable path to profitability (preferably both). Saying this, I have watched Afterpay’s shares go from $10.60 to nearly $29 over the past year and not banked a cent from it, so maybe I’m too cynical. But I still think there is more potential downside than upside from here.

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Sebastian Bowen 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. 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