Things have gone from bad to worse for the Afterpay Ltd (ASX: APT) share price. What could be next for the leading BNPL stock?
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The Afterpay Ltd (ASX: APT) share price in 2021 resembles that of a rollercoaster ride.
After ascending to a peak of ~$160 by mid-February, the train tumbled some 35% to a trough of $100 on 31 March.
Its shares were then pulled back up for a second, albeit a smaller peak of $129 by 20 April before free-falling down to $90 this week.
With so much whip saw-like action this year, what’s next for the Afterpay share price?
Most recent broker recommendation
Morgan Stanley (NYSE: MS) was the most recent broker to provide an update for its view on the Afterpay share price. The broker observes that Afterpay’s US app downloads in April were almost double that of a year ago. While this was not as strong as the record month of March, its April performance was still 20% higher than January and February figures.
The continuation of strong app downloads leads Morgan Stanley to believe that Afterpay’s US segment is still maintaining a strong growth trajectory. On 6 May, the broker retained an overweight rating with a $149 target price.
The forces dragging the Afterpay share price lower
While Morgan Stanley’s commentary could be on the money, there are a number of recent factors that have dragged the Afterpay share price in recent weeks.
This includes the slump in the S&P/ASX200 Info Tech (INDEXASX: XIJ) index, the Nasdaq Composite selloff, broader selling across the BNPL sector and rising concerns of higher interest rates.
While the company from an operational and financial perspective might continue to kick goals, these factors have capped both the upside and bullishness for Afterpay shares.
On 24 March, Macquarie released a balanced assessment of what could be next for the Afterpay share price. The report painted a pain before gain narrative, saying that:
BNPL has seen explosive growth in the past few years. As with many such trends (China Commodities in 2015, China Autos in 2018) we see short-term oversupply. We expect this to be followed by a few years of industry consolidation (i.e. pain for all players) before industry normalisation at a healthier supply/demand equilibrium. Despite the grim near term outlook case studies into other industries that have experienced this boom bust cycle typically see the industry overall emerge healthier than when entering the cycle, with the strong getting stronger and the weak losing out.
Afterpay continues to be a growth machine at the BNPL forefront of international expansion. But as a richly valued, loss-making company, the Afterpay share price has come under a heightened level of volatility.
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Motley Fool contributor Kerry Sun 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.