The Afterpay Touch Group Ltd (ASX: APT) share price fell almost 8% today.
Afterpay didn't actually release any market sensitive news today, the only thing the company announced after the market closed was that it will announce its results on 26 February 2019.
I imagine a significant part of the fall is that investors saw what happened with WiseTech Global Ltd (ASX: WTC), its share price dropped 10% in response to profit not being quite as much as the market would have liked even though net profit after tax (NPAT) went up 48%. Afterpay could suffer the same fate later this month.
Bear in mind that these large share price falls today only send the share prices back to where they were last month, although that's no comfort for people who invested yesterday.
That's the danger with investing in businesses where the forward price/earnings ratio is more than 100. Some businesses are definitely worthy of trading at a higher valuation than others, but sometimes too much expectations can be built into a share price.
We already know quite a lot of the numbers that Afterpay is going to report for the December 2018 half-year period, the company told us in the business developments update.
As a reminder, underlying sales were up 140% to $2.2 billion. The key to future growth is the US business which processed $260 million of underlying sales and now has $500 million of annualised underlying sales based on the first half of FY19. These are impressive, but will it be enough on report day?
Foolish takeaway
Afterpay had 3.1 million active customers in the last 12 months and a lot of Afterpay's revenue is from returning customers, which is very useful as it's building customer loyalty. However, despite the share price fall it's still trading at 129x FY20's estimated earnings.
