Stock market experts are urging Australians to think twice about jumping in late to grab shares in buy-now-pay-later tech juggernaut Afterpay – fearing a 30 per cent plunge.
Afterpay founders and Australia’s youngest billionaires Nick Molnar and Anthony Eisen made their fortune as the first recession in three decades, from coronavirus lockdowns, decimated traditional retailers.
Their creation Afterpay’s share price bottomed out at $8.80 in March, after plunging from the $40 mark reached in late February as the Australian Securities Exchange peaked.
Since that time, however, Afterpay has surged and multiplied to be worth $104.13 a share as of Monday morning.
Stock market experts are urging Australians to think twice about buying shares in buy now, pay later technology juggernauts like Afterpay amid fears share prices could dive by 30 per cent
Afterpay’s value surged above the $100 mark last week after it announced a deal with Westpac to provide Afterpay savings accounts that will enable customers to pay their bills and withdraw cash.
The Afterpay deal replaced one Westpac previously had with another buy-now-pay-later company Zip Co, whose shares fell from $7.15 last week to $6.74, having climbed from $1.18 in March.
IG market analyst Kyle Rodda said Afterpay’s share price could plunge by 30 per cent should there be more bad news about coronavirus
IG market analyst Kyle Rodda said Afterpay was becoming a long-term mainstream financial services player, and had good prospects for an expansion into the United States.
Nonetheless, he feared the shares could plunge by 30 per cent – to about $70 a share- if a new coronavirus crisis soured market sentiment and the Australian government imposed stricter rules on buy-now-pay-later products.
‘There’s a lot of froth in the price at the moment just because of the broader appeal of risk-taking in the current market environment,’ he told Daily Mail Australia.
‘If market sentiment really turned, a 30 per cent correction in that sort of a share wouldn’t be surprising based on where analysts see the price.
‘Would I personally be a buyer of Afterpay, up here? No.’
Greg Smith, the research director of funds manager Fat Prophets, said the likes of Afterpay could be superseded by interest-free credit cards offered by banks.
Australia’s youngest billionaires Nick Molnar (right with a friend) and Anthony Eisen have been an outstanding financial success story, despite the coronavirus shutdowns plunging Australia into its first recession in almost three decades
Afterpay, co-founded by Anthony Eisen (pictured) is now worth $104 a share
‘They could also be subject to disruption, some of the banks are coming up with no interest credit cards so I’d be wary about buying companies like Zip and Afterpay,’ he told Daily Mail Australia.
Hot tips for buying shares
1. Diversified mining giants Rio Tinto and BHP to capitalise on China’s rapid economic recovery
2. Qantas as the flying kangaroo airline’s market share climbs to 70 per cent
3. Accounting software company Xero has more people worked from home
4. HUB24 as tighter regulations see more companies use superannuation management tools
‘Companies like Afterpay – they’ve had a big run, their valuations are pretty stratospheric as it goes and I’m just not sure they’ll be enough to go around.’
National Australia Bank last month introduced a StraightUp interest-free Visa credit card which simply cuts off customers who fail to make repayments.
A day later, the Commonwealth Bank introduced a similar interest-free credit card called Neo.
Both Mr Smith and Mr Rodda agreed investors would be better advised to put their money into ‘old economy’ companies like miners.
They said China’s rapid economic recovery post-Covid meant diversified mining giants Rio Tinto and BHP would be a good investment, recommending them over iron ore producer Fortescue Metals Group.
‘The miners and the commodity players are an attractive proposition,’ Mr Rodda said.
‘I would be more wishing to expose myself to something diversified in terms of commodity markets and where they draw their income.’
Qantas was also regarded as a strong investment with chief executive Alan Joyce boasting to shareholders on Friday it would have a 70 per cent market share as its rival Virgin Australia downsized to survive under new US private equity owners, Bain Capital.
Since March, Afterpay shares have surged from $8.80 to $104.13 a share. Pictured is co-founder Nick Molnar with his wife Gabrielle
Nonethless, analysts are worried a souring share market and interest-free credit cards from the big banks could threaten Afterpay’s stronger trajectory
The flying kangaroo’s share price has more than doubled from $2.14 in March to $4.64 as investors anticipate higher profit margins once national and international travel lockdowns end.
‘It’s an attractive proposition but you have to be willing to experience potentially a lot of pain for a little while before you start to see that real upside,’ Mr Rodda said.
‘There’s a strong fundamental picture for Qantas in the longer-run, it just means you have to grit your teeth.’
When it came to technology stocks, Mr Smith said a company like accounting software firm Xero was a better bet.
Its share market has climbed from $58.75 in March to $116 as of this morning and unlike Afterpay and Zip Co, Xero didn’t have competitors who could potentially steal its market share.
China’s rapid economic recovery meant diversified mining giants Rio Tinto and BHP were regarded as good investments
Qantas was also regarded as a strong investment with chief executive Alan Joyce boasting to shareholders on Friday it would have a 70 per cent market share as its rival Virgin Australia downsized to survive under new US private equity owners, Bain Capital
‘Xero has done well with the work-from-home thematic,’ Mr Smith said.
He was also upbeat about HUB24, a technology platform for managing superannuation and portfolio investments.
HUB24’s share price has climbed from $6.40 in March to $21.50 as of Monday.
Mr Smith said Australia’s banking royal commission recommendations had led to an increase in demand for services to more closely monitor investments.
‘Fund managers, because of all the regulation, are either looking to outsource funds administration,’ he said.