The Afterpay Touch Group Ltd [ASX:APT] share price has been zigzagging on the stock exchange in a fairly volatile fashion over the last 24 hours, leading investors to wonder what’s happening to disrupt the stock.
In early morning trading, it has fallen by 2.82%, and was sitting at $7.80.
But yesterday opened on a stellar 52-week high for Afterpay which only introduced itself to the US market last month.
Afterpay is a payment solutions company, allowing customers to pay after purchase through instalments.
Why is the share price behaving like this?
On Tuesday, The Australian Financial Review (AFR) published a reasonably incriminating article on the company, in which it was criticised over its lack of risk protocols. This may have resulted in the recent drop.
In addition, fellow fin-tech company Prospa had an embarrassing false start following ASIC questions over its loan terms.
It was expected to enter the ASX midday yesterday. Eager onlookers only got tumbleweeds. This could have decreased market confidence in fin-tech stocks on the whole, though it seems unlikely.
Afterpay has not released a statement since the abrupt drop, and analysts do not seem to be fretting just yet. After all, its performance has been positive since a largely publicised launch in the US.
The US online retail market is bigger than Australia’s, while Urban Outfitters, Inc. [NASDAQ:URBN] makes a formidable first partner for Afterpay. The US retail giant has a total sales volume of about US$3 billion, which is about the size of Australia’s online fashion market alone.
In an ASX statement last month, Afterpay signalled positive early engagement across an initial target market. Over 50 retailers have already signed contracts or term sheets.
It’s been a good year for the group in general. In January this year, a venture capital firm from Cambridge, Matrix Partners, invested nearly $20 million in Afterpay Touch. Over the past 12 months, its share price has gained over 214%.
Is Afterpay a good investment opportunity?
Consumers are clearly loving the convenience of a new intelligent product. With no interest or added fees, the only payment appears to come from the retail merchant.
This is a revolutionary turn of events for consumers who are used to footing the bill with credit cards and bank loans. And it’s big money for Afterpay who are finally meeting consumer demand for more flexible payment solutions.
But while the company may have a fierce product on the market, it’s worth doing a bit of risk analysis and following the concerns of the market closely. Last month, reports of insider selling were admitted by the company’s executive directors. Selling shares off-market doesn’t always go down well with the market. The identities of these institutional investors have not been revealed.
However, the fact that institutional investors want a piece of the pie, does indicate spectacularly high demand. And although the expectation for Afterpay is set far above its competitors, the risk could well be worth the reward.
Editor, Money Morning
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