Why Afterpay’s Share Price Plunged Nearly 19% Yesterday

Afterpay logo

The Afterpay Touch Group Ltd [ASX:APT] share price plummeted nearly 19% in trading yesterday, closing at $11.35.

This is less than half of the tech stock’s value compared to only two months prior — when it hit a record high on 27 August of $21.13.

Why the huge decline in Afterpay’s share price?

Well, it’s no secret that there is pressure on the financial sector following the royal commission. But yesterday, as reported by the Sydney Morning Herald (SMH), Labor proposed a Senate inquiry into ‘parts of the sector that have escaped the scrutiny’.

Payday lenders, buy now pay later schemes and ‘debt vultures’, will be the focus of the inquiry.

The inquiry has the backing of The Greens, as well as independent Derryn Hinch and Centre Alliance senators Rex Patrick and Stirling Griff. This guarantees that it will have enough votes to pass the Senate, as reported by SMH.

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Afterpay have welcomed the inquiry, stating that they believe the ‘buy now pay later model’ is inconsistent throughout the market:

Our model is unique in that we provide a free service to customers if payments are made on time, we do not charge interest, our instalment periods are short, and if payments aren’t made on time we immediately suspend a customer’s account which means they will never be caught in revolving debt.’

It wasn’t only Afterpay that felt the wrath of this inquiry. Rival Zip Co Ltd [ASX:Z1P] lost more than 12%, Cash Converters International Ltd [ASX:CCV] and Money3 Corporation Ltd [ASX:MNY] lost 12% and 14%, and Credit Corp Group Ltd [ASX:CCP] fell by 9.2%.

What can we expect to see?

Despite yesterday’s sell-off, investors seem to be taking the opportunity this morning to buy cheap stock.

At time of writing, all of the mentioned stock have bounced back between 4–8% with Afterpay surpassing the rest, up 13.8%.

There’s no doubt that this inquiry (like the royal commission before it) will have a substantial impact on each of these companies. As for the extent of the impact, it will be a matter of how each of these handle the heat and respond to the criticism.

Gerard Brody, chief executive of the Consumer Action Law Centre, is anticipating this inquiry to be far more speculative than the royal commission.

If you think the banks, insurers and superannuation funds are ripping people off, they are nothing compared with the exploitative conduct of this sector of the marketplace.’

We will just have to wait and see how this plays out.

Regards,

 

Ryan Dinse,

For Money Morning

PS: If you’re on the hunt for some more high-risk tech plays with massive potential. Check out our tech investment expert Harje Ronngard’s free report ‘The Key to Spotting Breakout Biotech Stocks’ here.

Ryan Dinse

Ryan Dinse

Ryan Dinse is an editor at Money Morning. With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

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