The Afterpay Touch Group Ltd (ASX: APT) share price fell as much as 4.5% in today's trade as the stock saw a late correction in an otherwise strong trading week. Afterpay's share price has risen steadily throughout the week, gaining as much as 8.07% at Wednesday's close following the release of the Royal Commission final report on Monday afternoon.
While the Royal Commission was ongoing, Afterpay was also subject to a Senate inquiry designed as a catch-all for lenders not within the limited remit of the Commission including "buy now, pay later" services, payday lenders and debt vulture funds. The stock bounced following this inquiry as ASIC suggested it would not be bringing Afterpay (or similar products) under the National Consumer Credit Protection Act 2009, which would have potentially hamstrung the company's future business model.
Now boasting a market cap of ~$4 billion, the biggest risk to Afterpay's growth trajectory has always been the looming threat of regulation by the likes of ASIC if the company was deemed to be a credit provider. One of the biggest targets in Hayne's final report were the two regulators, ASIC and APRA, with an independent inquiry reviewing the performance of the twin bodies in three years' time.
The early surge in Afterpay's share price was based on greater surety in the domestic lending landscape with the banks keeping their business lending books open. However, a likely credit tightening could see more traffic flow to Afterpay as people start to need fast, small-scale payment solutions.
So, is the Afterpay share price a 'Buy'?
In short, I think the answer is no.
In my view, I think today's correction was overdue, with Afterpay likely to miss estimates on domestic sales volumes when they report on February 26th. Australian economic data has been worsening in recent months, with the RBA cutting its GDP and inflation forecasts earlier on Friday. This follows the recent miss on Australian retail sales data for December (-0.4% month-on-month vs. 0.0% estimate) which I think could translate to lower quality earnings for Afterpay.
