Here’s why one fund manager went cold on the market darling in May.
The post Is momentum slowing for the Afterpay (ASX:APT) share price? appeared first on The Motley Fool Australia. –
Shares in ASX golden child Afterpay Ltd (ASX: APT) aren’t all they’re cracked up to be, according to a May report from Yarra Capital Management.
In an analysis of how its Australian Equities Fund performed during May 2021, Yarra Capital Management called out Afterpay as among its poorer performing investments, highlighting a number of causes for concern and rating it is underweight.
The fund management firm is yet to release its report on the fund’s performance in June.
Despite Yarra Capital’s “negative view”, the Afterpay share price is having a great day on the ASX today. At the time of writing, shares in the buy now, pay later (BNPL) payments provider are trading almost 5% higher at $120.35 apiece.
However, the same couldn’t be said a few months ago. Let’s take a look at why Yarra Capital went cold on Afterpay in May.
The Afterpay share price fell 21% in May, despite the company releasing no price-sensitive news to the market.
May was a particularly bad month for Afterpay shares, as well as for the S&P/ASX 200 Info Tech Index (ASX: XIJ). The entire index fell by around 10% across the month.
Luckily, the Afterpay share price has gained back the ground it lost plus more. It’s now almost 30% higher than it was at May’s end.
Why did the BNPL company disappoint Yarra Capital?
According to Yarra Capital, Afterpay underperformed in May as concerns its momentum is slowing started to escalate.
The fund management firm stated the growth rate of Afterpay’s app downloads slowed over the period. This caused it to question the sustainability of Afterpay’s “attractive” margins.
Yarra Capital also noted that competition in the BNPL space has increased. Over the period, high-profile companies such as PayPal Holdings Inc (NASDAQ: PYPL) ran onto the BNPL field, potentially stealing Afterpay’s thunder.
Additionally, increased regulation in the BNPL sphere was a cause for Yarra Capital’s concern.
Finally, the fund management firm stated it believes Afterpay’s intense capital growth is underappreciated by the market.
It said Afterpay’s current model is only able to function while its enterprise value-to-sales remain high. It says Afterpay’s enterprise value-to-sales is currently at 18.2 times on a 12-month forward basis.
Afterpay share price snapshot
So far, 2021 hasn’t been great for Afterpay. In fact, many BNPL shares beat it to the cake during the 2021 financial year.
Right now, the Afterpay share price has only gained around 2% year to date. However, it has gained around 77% since this time last year.
The BNPL giant has a market capitalisation of around $35 billion, with approximately 290 million shares outstanding.
Should you invest $1,000 in Afterpay right now?
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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and PayPal Holdings. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.