The Afterpay Ltd (ASX: APT) share price has been on a bullish run for the best part of 2 years. In the last 12 months alone, the group's shares are up 121.79% to $38.99 per share.
In the process, the buy-now, pay-later (BNPL) group's market capitalisation has swelled to $10.32 billion. For context, Qantas Airways Limited (ASX: QAN) is worth $9.93 billion right now and listed on the ASX in 1995.
So, is Afterpay set to surge into the ASX 20 this year or are its shares overvalued right now?
Why Afterpay shares have rocketed
The key to Afterpay's astronomic share price growth has been steady expansion and strong customer retention. The BNPL leader reached 35,300 merchants in August 2019 with total FY19 underlying sales of $7.2 billion.
The group has managed to maintain its net transaction margin despite the steady expansion both at home and in the United States.
Afterpay shares recently surged past the $40 per share mark and could climb higher after its 27 February results release. But is the group really worth $10 billion, or is even that too low?
Compare the pair
Qantas is undoubtedly an ASX blue-chip and has been a mainstay in 'mum-and-dad' portfolios for decades. Qantas shares are yielding a 3.75% dividend right now and are up 131.54% in the last 5 years.
For context, Afterpay is yet to post a statutory profit despite its strong underlying sales. In contrast, Qantas delivered an underlying profit after tax of $891 million in FY19.
The big difference here is one of growth versus value.
Afterpay shares are being valued based on their potential returns to shareholders in the future. Much of the group's valuation is reliant on the BNPL group hitting its growth forecasts for years to come.
However, Qantas shares trade at a price-to-earnings ratio of just 12.2 times, meaning most of the value is in its dividends.
There is a good chance that Afterpay could surge into the ASX 50 and even the ASX 20 by the end of the year.
By my calculations, Suncorp Group Ltd (ASX: SUN) and Insurance Australia Group Ltd (ASX: IAG) are the smallest of the top 20 companies with market caps of around $16 billion.
However, if Afterpay misses estimates in its February results we could see a similar reaction to the one that Nearmap Ltd (ASX: NEA) experienced last week.
