The Afterpay Ltd (ASX: APT) share price was on form earlier today before fading in late trade.
At one stage the payments company's shares were up as much as 5% to $54.63.
When its shares hit that level, it meant they were up a whopping 580% from the 52-week low they hit in March.
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Why has the Afterpay share price been on fire over the last three months?
There have been a number of catalysts for the incredible rebound in the Afterpay share price since March.
The first was the resilience of its business model, which caught the market by surprise. Many investors were sure that Afterpay would struggle in a recession, but the company has proven them very wrong.
Not only has Afterpay continued to deliver explosive underlying sales growth, its bad debts have remained consistent.
I believe the low average transaction values and the flexibility of its business model are to thank for its strong bad debt performance. In respect to the latter, over the last few months Afterpay has required the first instalment upfront for purchases, with three payments to follow. I believe this has reduced the overall risk of each transaction without stifling its growth.
What else is supporting its share price?
Another key catalyst to its strong share price performance has been the emergence of Tencent Holdings on its share registry as a substantial shareholder.
Given how powerful Tencent is in Asia thanks to its massively popular WeChat app, it could potentially open up this key market to Afterpay in the future.
Combined with potential expansions onto mainland Europe and its rapidly growing U.S. business, Afterpay could continue its meteoric growth for a long time to come.
Speaking of its U.S. business, that was another driver of its strong share price rebound. A recent update revealed that it now has over 5 million active customers in the United States using its buy now pay later service.
Impressively, more than one million new customers started using its platform in the country during a 10-week period at the height of the pandemic.
And while 5 million active customers may sound like a large number, there is still a long runway for growth in the lucrative market. Rival Zip Co Ltd (ASX: Z1P) has just entered the United States via an acquisition and revealed that it estimates the retail market to be worth $5 trillion a year.
Should you buy Afterpay shares?
While its shares do trade at a significant premium to the market average and carry a lot of risk, I believe they could still be a great long term option for investors.
In light of this, I would still be a buyer of its shares if you're prepared to make a buy and hold investment. Though, restricting your holding to a small part of your portfolio might be prudent given the risks.
