The Afterpay Ltd (ASX: APT) share price has been making a bounce off last week's lows, which occurred following speculation Apple Inc is developing its own buy now, pay later (BNPL) later service.
The BNPL sector seems to have no shortage of competitors, from local ASX-listed players and banks to global behemoths such as Apple and PayPal Holdings Inc.
In a recent article featured on Livewire, Shaw and Partners portfolio manager James Gerrish is drawing comparisons between the once overcrowded lithium market and today's BNPL space.
While the now booming lithium market and the Afterpay share price might be worlds apart, they may have more in common than you'd think.
When lithium went from boom to bust
Gerrish thinks there is a possible scenario in which the BNPL sector follows a similar path to the lithium sector.
"It was incredibly 'hot' through 2017/18 only to fall significantly over the ensuing few years as production was ramped up, globally suppressing prices. This increase in commodity supply can be compared to the increase of BNPL players."
According to S&P Global Inc, lithium carbonate prices tumbled from record highs of US$25,000/mt to lows of around US$10,000/mt.
Commentary dating back to 2019 from S&P Global said of the situation: "Lithium supply is growing far quicker than lithium demand and this can be said for all battery materials as the EV pick up rate is not expected to really start increasing until the early to mid-2020's"
Between January 2019 and February 2020, shares in leading ASX-lithium miner Pilbara Minerals Ltd (ASX: PLS) would tumble 50.7% to a record low of 30 cents.
Other leading lithium players including Orocobre Ltd (ASX: ORE) and Galaxy Resources Ltd (ASX: GXY) would also see their valuations more than halve between 2019 and 2020.
Unfortunately, emerging players Alita Resources Ltd and Altura Mining Ltd went on to eventually fall into administration after running out of cash and/or failing to secure offtake agreements.
Fast forward to today, Pilbara, Orocobre and Galaxy have surged to either multi-year or record highs.
Turning back to ASX BNPL shares and Gerrish says there could be a "protracted period of underperformance from the BNPL space but we do ultimately believe they can rise from the ashes".
Afterpay share price so far this year
The Afterpay share price has once again delved into negative year-to-date territory, down about 10%.
Gerrish thinks the BNPL sector could be in for a volatile next couple of months, saying "a further 20-25% fall by local leader Afterpay for example, wouldn't be a surprise".
