Why are the Afterpay (APT) and Zip share prices on the rebound?
Shares in BNPL stocks Afterpay, Zip and Sezzle are bouncing back after extended losses in the last few weeks.
Could buy now pay later market darling Afterpay (ASX: APT) finally be seeing light at the end of the tunnel? The stock was up more than 1.5% at $86.05 at the time of writing. Smaller rivals Zip (ASX:Z1P) and Sezzle (ASX:SZL) were also up by similar margins to $6.80 and $7.21 in early trading on Friday.
Why the Afterpay stock price is climbing
Afterpay shares are likely the beneficiary of an overnight rally in technology shares in the US market. Apple, Microsoft, Facebook and Google's parent company Alphabet were among the best performers, as investors piled in after most of these stocks lost value earlier in the week.
It has been a similar story for BNPL stocks on the ASX.
Afterpay shares have nearly halved from their peak of $160 in February as the sky-high valuations have left investors jittery about the fast-growing but still loss-making company.
The stock, along with those of Zip and Sezzle have been pummelled most recently on growing fears that an increase in benchmark US interest rates will hurt growth in the world’s biggest retail market.
Rising competition in the buy now pay later market from the likes of global financial heavyweight Paypal as well as Australia’s Commonwealth Bank (ASX: CBA) have also dampened investor sentiment.
Afterpay co-founder Anthony Eisen has shrugged off investors' fears about interest rates.
“Even if interest rates doubled or tripled from this point, it wouldn’t be pervasive to our margin equation,” he said at the Macquarie Australia conference this month.
Many analysts agree with that assessment.
Macquarie analysts recently said in a report that while there might be overcapacity in the BNPL industry in the near term, there will be consolidation and the industry will emerge stronger, similar to what other sectors such as automobiles and mining have witnessed.
That should bode well for entrenched players like Afterpay, Zip and Sezzle which helped define the entire BNPL business model.
Morgan Stanley last week noted that Afterpay is still maintaining eye-watering growth rates in the US market, with app downloads in April almost double that of a year ago. The broker retains an "overweight" rating and a $149 target price on the stock.
The BNPL sector is certainly in line for interesting times ahead!
Considering buying buy now pay later shares?
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