Why are the Afterpay (APT) and Zip share prices on the rebound?

Posted: 14 May 2021 12:18 pm
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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.

Growth market

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?

If you are keen to buy shares in Afterpay, Zip or Sezzle, consider investing through an online share trading platform.

Keep in mind that not all platforms offer the same set of stocks. Some offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

Choose from the dozens available for Australian investors. Compare the features and fees from the plethora of trading platforms available for Australian investors.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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