Is Afterpay worth $51.50 per share?
Morgan Stanley remains unmoved. Bell Potter bullish. And the market, infatuated.
During the height of the coronavirus-led market panic – when Afterpay (APT) traded below $10 per share – if someone had of told you that their 12-month price target on the stock was $51.50 per share, the reaction surely would have been one of incredulity.
Rightfully so! At its March low, that price target would’ve implied upside of over 500%.
But we’re no longer at those March lows: Central banks are making aggressive moves to shore up their respective economies, investors are as bullish as ever and Afterpay is back to being the ASX’s market darling.
Those sub-$10 prices now just represent wishful entry points for APT perma-bulls; or disastrous reminders for those looking to short cult stocks.
Is Afterpay worth $51.50?
Anyway, Bell Potter today revealed that it had upgraded its 12-month price target on Afterpay to $51.50 per share while retaining its Buy rating. This move was somewhat expected: Afterpay is growing its user-base faster than expected, as a result its earnings are expected to come in higher across FY21e and FY22e, and at current US user levels, the company has reached the elusive stage of ‘critical mass,’ according to Bell.
As we wrote yesterday:
‘Afterpay today announced that it had cracked 5 million active customers in the US, taking the company’s US user-base to over 9 million.’
The stock rose on that news and it rose again today: Afterpay opened at $44.250 per share. It closed Thursday’s session at $44.00 per share.
Bell Potter analysts said the US user growth news was ahead of its expectations and that ‘the COVID-19 related cuts we pushed through in March appear to be too conservative, and in fact, APT is accelerating its growth rate with daily new users up 30-40% in the last 10 weeks versus what was experienced in January and February.’
And better still, ‘with 5m active users Afterpay is better able to target bigger retailers and deliver something tangible: a captive audience, along with providing its other typical benefits of higher conversion rates, larger basket sizes and increased repeat customer,' the broker finished.
In response to this release, the broker upgraded their earnings per share (EPS) forecasts across FY20e to FY22e by 1.2%, 9.0% and 8.4%, respectively.
Elsewhere, Morgan Stanley (MS) was less inclined to bump up their price target off the back of Afterpay's US user milestone, commenting that this growth was already baked into the share price.
MS remains equal-weight APT.
The investment bank did make the interesting point that between a split of 9 million users and 5 million active users, there is a large dormant base within the US. Make of that what you will.
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