The Afterpay Ltd (ASX: APT) share price has risen by 742.81% since its low point on 23 March. The company has had an astonishing run and has become the figurehead of an entirely new way of providing consumer debt. Moreover, at its closing price on Tuesday, Afterpay shares had a market capitalisation of $21.32 billion.
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Can Afterpay shares continue to grow?
Whether Afterpay shares deserve their current valuation is not the point. The question for growth investors is "can I at least double my initial investment?" Personally, I doubt it. To further illustrate the size of this company, it is currently worth more than Woodside Petroleum Limited (ASX: WPL). In addition, it is no longer alone in a wide blue ocean.
Australia has already created a slew of buy now, pay later (BNPL) competitors with many different approaches. Moreover, both Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB) have entered the market directly with their own interest-free credit cards. CommBank also has a native BNPL product called Klarna. Lastly, the payments giant Paypal Holdings Inc (NASDAQ: PYPL) has also entered the market with an existing network of 204 million users.
Afterpay shares are in a sector which has very few barriers to entry, it is surrounded by giant sharks, and it already has a market cap larger than many of the blue chip shares in the S&P/ASX 20 Index (ASX: XTL).
If you want high levels of growth, there are a range of well positioned companies to choose from. All of them are first movers in their sectors, they have solid competitive advantages, and they appear well managed.
Whispir Ltd (ASX: WSP)
Like Afterpay shares, Whispir has a very large addressable market. Large enough for it to more than double its current market cap of $337.6 million, I believe. Whispir provides a communications platform between organisations and people across a whole range of content. It produces 1.5 billion transactions each year and counts many government departments, retail chains, utilities and councils among its client base.
The company recently reported an increase in revenues of 25.5%, a gross profit margin of 62.5%, and 95.6% of revenues come from annual recurring revenues (ARR). The company is not yet profitable, however it has a subscriber model, very high gross margin, and is growing at a considerable rate.
Zip Co Ltd (ASX: Z1P)
Most people understandably think Zip shares are just smaller copies of Afterpay shares. Zip entered the BNPL market in pursuit of Afterpay and is now continuing to pursue it in the United Kingdom and the United States. It is impacted by the same issues that affect all of the BNPL shares. So what makes it different?
Zip Co is building an alternative finance company, not just a BNPL company. It recently announced a deal between its business lending division, Zip Business, and the Australian arm of eBay Inc (NASDAQ: EBAY). The company has another arm purchased in 2019 called Spotcap. In the recent deal, this will provide cash flow finance to small and medium enterprises on eBay, as well as invoice financing and lines of credit.
DroneShield Ltd (ASX: DRO)
DroneShield makes non-ballistic detection and disruption technology for drones. The company is gaining momentum with sales to defence and civil clients globally. Recently it has announced contracts with South East Asian defence forces, the US Government and European airports.
Some of the company's other recent successes during CY20 include an EU Police 4-year framework agreement for DroneGun Tactical units, a European Ministry of Defence purchase of DroneShield command and control systems, as well as several other orders for anti-drone technology. I think DroneShield is likely to continue to grow because, unlike Afterpay shares, it has solid intellectual property.
