Afterpay Touch Group Ltd shares rocket on Goldmans' view

Afterpay Touch Group Ltd (ASX:AFT) has taken the Australian retail scene by storm.

Tom Richardson

Tom is a holder of the CFA Society of the UK administered Investment Management Certificate (IMC) and has more than a decade's professional experience in the investment management industry in Australia and the UK. Tom now works as a writer and editor for TMF Australia and has two easy to remember rules of investing he likes to follow. Avoid overpaying for growth stocks and avoid paying at all for stocks that are cheap for a reason. Tom prefers growth investing over value investing and says it's not rocket science, just avoid overpaying for the best returns.

Published December 4, 2017 2:17 pm AEDT

Shares in, buy now, pay later, shopping business Afterpay Touch Group Ltd (ASX: AFT) jumped 6% higher in morning trade to $5.08 on the back of news reports that analysts at financial services giant Goldman Sachs had slapped a "buy" recommendation on the company.

Goldmans reportedly values the shares at more than $7 and reckons EBITDA could grow 21x between 2017 to 2020, with the group reporting an EBITDA of $1.9 million for FY 2017 after deducting for merger costs and one-off expenses.

Afterpay's business model of extending consumers short term credit has been incredibly popular with more than 8,600 retailers signed-up and the on-baording rate reported to be accelerating over the most recent quarter. As such the group is starting to build some kind of network effect whereby not offering Afterpay could lead to a retailer suffering a competitive disadvantage.

Whether or not the stock rises to meet Goldmans' bullish valuation will largely depend on its success or otherwise in starting to turn profits at heathy compound annual growth rates.

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