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Afterpay share price: why analysts continue to rate the stock a ‘Buy’

As Afterpay sets a solid date for the release of its half-yearly results, we examine the current analyst outlook on the stock.

Afterpay share price: the story so far

Over the last few years Afterpay (ASX: APT) has risen from relative obscurity to become one of the most talked about and traded stocks on the ASX.

In step with that, the market darling currently trades ~$39 per share on a market capitalisation in excess of $10 billion. Its closest rival Zip (ASX: Z1P) is significantly smaller, with a market capitalisation of just $1.7 billion.

In the last month alone – Afterpay – arguably one of the world’s leading buy now pay later (BNPL) players – has seen its share price rise an impressive ~30%.

In the last year: it’s up more than 130%.

Recent bullish price action may be based on elevated investor expectations surrounding the release of the company’s first-half, FY20 results.

Specifically, Afterpay just yesterday announced that it would release these results on 27 February, with the fast-growing company simultaneously noting that ‘an investor briefing will be held via live audio webcast at 10:30am (Melbourne time).’

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‘Buy’ now, ‘Sell’ and ‘Hold’ later

If investors are expecting big things from the company, analysts remain equally bullish on the company’s prospects as we move through FY20.

Surveying the broader broker outlook, Afterpay continues to be liked by analysts, with 71.4% of analysts rating the stock a ‘Buy’. By comparison, 14.3% of analysts rate the stock a ‘Hold’ and another 14.3% rate it a ‘Sell’, according to Bloomberg Data.

As is often the case, it is likely the belief in the continuation of Afterpay’s above-average growth that has fuelled analysts to overwhelmingly rate the stock a ‘Buy’.

On the top-line and on average, analysts expect Afterpay to grow its revenue by 136.9% – to $516.3 million by the end of FY20. Gross profits are expected to rise in step, anticipated to hit $427.0 million in FY20, on average. Earnings (NPAT) are also expected to once again turn positive during the 2020 fiscal year – reaching $14.5 million. The year prior APT posted a loss of $42.9 million, according to Bloomberg Data.

Moreover and though Afterpay currently trades at a lofty 42x price-to-sales ratio, these multiples are expected to contract in the coming years, estimated at 19.97x in FY20 and 11.98x in FY21, on average and according to Bloomberg Data.

In saying all this, Afterpay’s impressive share price run-up has seen the stock race ahead of analyst estimates: with Bloomberg Data revealing that the stock boasts an average 12-month price target of $34.80. At current price levels, that target would imply potential downside of ~10%.

Local broker Bell Potter continues to be the most bullish on the company’s prospects, rating it a ‘Buy’ and hitting the stock with a price target of $49.35 per share.

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