On fire! 2 reasons why the Afterpay (ASX:APT) share price rocketed 12% in January

The Afterpay Ltd (ASX: APT) share price has had a top month over January, rising more than 13%. Here are 2 possible reasons why

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The Afterpay Ltd (ASX: APT) share price is not having a good day today. It's not even lunchtime (at the time of writing), and yet Afterpay shares are currently down 0.81% to $134 a share.

In fact, it hasn't been a great week for the buy now, pay later (BNPL) pioneer, period. Since Wednesday last week, Afterpay shares are down more than 11%.

But zooming out, it's a different story. Over the month of January, Afterpay shares rose more than 13% (13.53% to be precise). On days like today, it can be easy to forget Afterpay made a new all-time high of $151.22 less than 2 weeks ago. Even after today's fall, Afterpay shares remain up more than 9% year to date, not a bad way to open 2021.

So why did Afterpay have such a good start to the year?

Well, there are 2 possible reasons:

1. Positive sentiment for Afterpay shares

Afterpay has developed a reputation as a gift that keeps on giving. Think about it, this ASX share has delivered double- or triple-digit returns every year for the last few years to its loyal investors (despite some healthy volatility along the way). And many investors are reluctant to kill the golden goose, as it were.

Further, as my Fool colleague James Mickleboro reported last week, Afterpay has recently also been upgraded by several brokers who expect Afterpay's strong growth in subscribers and transaction volumes to continue unbridled in 2021 and beyond.

Add to this a hugely successful US IPO for fellow BNPL company Affirm Holdings Inc (NASDAQ: AFRM) and you can see why investors might have wanted to keep jumping on the bandwagon in January with this one.

2. A rising market lifts all boats

When looking at the Afterpay share price over January, it pays to remember that the broader markets also had a top month…. until 25 January that is.

Yes, the S&P/ASX 200 Index (ASX: XJO) has come off the boil since then. But between New Year's Day and 25 January, the index was up a healthy 2.1%. And that's when Afterpay did most of its heavy lifting, share price wise.

A growth stock like Afterpay tends to outperform the broader market when positive sentiment is strong. And it's clear that this sentiment was strong enough to keep the Afterpay share price relatively high, even after the broader market sell-off over the past week or so.

Remember, Afterpay investors, are probably used to volatility by now. And most of them have probably learnt that selling out on a dip has historically been a bad idea.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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