Why Afterpay shares gained 14% this week

At $33 it trades on 46x Goldman's estimates for 71 cents in earnings per share for the year ending June 30 2022.

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Afterpay Touch Group Ltd (ASX: APT) shares are surging again today after the buy-now-pay-later specialist held a positive trading update this week.

Afterpay reported it added 15,000 customers per day over the month of October as it continues to grow at a breakneck pace in Australia, the US and UK. In total it now has nearly 40,000 retailers offering its platform to shoppers.

According to to its latest regulatory filing dated October 31 2019 the group has 252.7 million shares on issue to give it a market value around $8.34 billion based on a $33 share price.

In addition on November 13 it announced it will place $200 million worth of shares at $28.50 each to a private U.S. tech investor to take the market value closer to $8.5 billion post-placement. 

Despite the high valuation for a business yet to post a profit brokers are generally enthusiastic about Afterpay, with both Goldman Sachs and Bell Potter retaining 'buy' ratings on the stock and valuations above $41.

At $33 it trades on 46x Goldman's estimates for 71 cents in earnings per share for the year ending June 30 2022.

There's a lot of water to travel under the bridge between now and then which means Afterpay is a high-risk bet at these valuations. 

However, if it does meet analysts' aggressive consensus estimates it's possible the stock goes even higher over time. 

Tom Richardson owns shares of AFTERPAY T FPO.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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