Afterpay share price hits $67! Are BNPL shares in a bubble?

With the Afterpay share price hitting a new record high today, how long can ASX BNPL shares continue delivering triple digit growth figures?

| More on:
Hand holding a pin next to a bubble with a dollar sign in it

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

We've had news today that WAAAX high-flyer, buy now, pay later (BNPL) pioneer and ASX growth market darling Afterpay Ltd (ASX: APT) has hit yet another record high. The Afterpay share price started trading today at $64.20 before reaching a new high of $67.34 (at the time of writing). It's now up nearly 130% year to date and around 740% off the lows we saw in March. Holy Macaroni!

The Afterpay share price isn't alone

It's not just Afterpay that has been exploding in value in recent weeks. The entire BNPL sector has been on a tear. It seems to me (much like the dot-com bubble of the early 2000s) that all a company needs to do to attract a frenzy of investors is to have the word 'pay' in its company name or modus operandi.

Let's look at Zip Co Ltd (ASX: Z1P). Zip shares are up ~62% year to date and up 448% from their March lows.

Openpay Group Ltd (ASX: OPY)? Up nearly 85% year to date and 622% since March.

How about Splitit Ltd (ASX: SPT)? It's up 90.9% year to date and over 500% since its March lows

Pushpay Holdings Ltd (ASX: PPH)? Up 126% year to date and 269% since March.

Sezzle Inc (ASX: SZL) is up 157% year to date and more than 1,000% since March. Yowza!

You get the idea…

Are we in BNPL bubble territory?

Whenever I see numbers like these, I'll be honest and tell you that alarm bells ring for me. I can't conceivably accept that the real value of all these companies has doubled, tripled or more since March. Sure, the market may have tilted in the BNPL sector's favour with shifts to online shopping and 'cash flow management' of purchases as a result of the coronavirus pandemic. But these numbers are bordering on ridiculous for me.

And apparently, I'm not the only one. According to reporting in the Australian Financial Review (AFR) yesterday, fund manager Investors Mutual is also shunning the BNPL sector. The AFR quotes Investors Mutual senior portfolio manager Simon Conn:

"We've seen an increased level of retail activity in the market and there's not a lot of fundamental analysis going on but a lot of momentum. The small-cap market is particularly prone to fads and bubbles. You remember the dotcom boom, with stocks trading in excess of $1 billion with no profits and then falling apart."

Mr Conn references the Afterpay share price as well as those of Zip, Splitit, Sezzle and Openpay. He points out that, together, these companies have combined market capitalisations of over $20 billion, but not a dollar of profits between them. "There's very extreme valuations and a lot of risk in that sector," said Mr Conn.

It's hard to argue with cold, raw data like that.

Foolish takeaway

I think there is a lot of potential in the payments and buy now, pay later sector to be sure. We're moving towards a cashless society and these kinds of companies stand to benefit the most. But right now, there's no way I could regard the Afterpay share price, or any of the companies discussed above, as 'fairly valued'. I do think the market is getting a little bubbly and carried away with these shares, and I'll be sitting on the sidelines until things return to some semblance of rationality.

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PUSHPAY FPO NZX and Sezzle Inc. 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.

More on Share Gainers

Ten smiling business people wave to the camera after receiving some winning company news.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a nervous, but positive, Tuesday for ASX investors.

Read more »

two colleagues high five each other as they sit side by side at a long desk in front of their laptop computers in an office environment.
Share Gainers

Why Bapcor, Ramelius, Sandfire, and WIA Gold shares are rising today

These shares are having a better day than most on Tuesday. But why?

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors started the week off in a good mood today.

Read more »

Excited couple celebrating success while looking at smartphone.
Share Gainers

Why Bellevue Gold, Bubs, Clarity Pharmaceuticals, and Regal Partners shares are rising today

These shares are starting the week on a positive note.

Read more »

Two people lazing in deck chairs on a beautiful sandy beach throw their hands up in the air.
Travel Shares

Guess which ASX All Ords travel stock just rocketed 17% on an earnings upgrade

Investors are piling into the ASX All Ords travel stock today. Here's what's happening.

Read more »

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Dimerix, Newmont, Regal Partners, and Titomic shares are storming higher

These shares are having a good finish to the week. Let's see why.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Share Gainers

Why Fortescue, Lynas, PEXA, and Regis Healthcare shares are charging higher

These shares are having a strong session on Thursday. But why?

Read more »