Does Afterpay’s 200% Rise Spell Opportunity?
By Dale Gillham |
Over the past few years, Australians’ have flocked to buy now pay later services (BNPL) due to an explosion in companies offering this service, such as Afterpay Touch, Zippay, Sezzle and Splitit to name a few. The attraction of these services has also seen share prices skyrocket, as retail investors speculate on these Fintech stocks. Afterpay (APT) has performed the best up 261 per cent from 2 January to 20 October this year while Zippay (Z1P) is up 200 per cent from 2 Jan to 27 August. But has the sun set on these Fintech stocks or is there more to come?
PayPal, Mastercard and Visa enter the BNPL space
The Information Technology sector has been the best performer this year up over 40 per cent while Energy has been the worst performer and despite a 33 per cent gain so far this month, it is still down over 20 per cent for the year. In my opinion, these BNPL stocks have had their day and like all stocks in new and exciting areas that have spectacular rises over short periods of time, they eventually come back to down to earth.
The challenge for companies in the BNPL space is that the big players in the short-term finance and payment gateway system have sat back and let these new fintech’s develop the market and appetite for BNPL. In essence, they let the new players take all the risk and now the big players are beginning to enter this space. Mastercard, Visa and in the last few weeks’ PayPal have now entered this space in the US market capturing over 25 per cent of the market, which has sent shock waves among the other BNPL players. These big players also have their sights set on the Australian market.
While it is possible that companies like Afterpay and Zippay will survive and grow despite these big players, the success or failure of these new Fintech stocks will be determined by how flexible and responsive the big companies are to their clients, rather than how innovative they are.
Mastercard, Visa and Pay Pal are well established in the payments industry, as each have a significant number of clients to market their BNPL services to and if they get it right the new fintech’s will struggle to grow. Right now it is too early to tell how much effect these big players will have on this industry, but in my mind young BNPL stocks have had their day in the sun and investors would be wise to think about exiting this space and to come back after the dust settles on this battle.
What were the best and worst performing sectors last week?
The Australia stock market has, once again, performed well with most sectors up for the week. Energy was the best performer again up 6.25 per cent followed by Materials up 3.18 per cent and Financials up 1.74 per cent. The worst performing sectors included Healthcare down 2.83 per cent followed by Consumer Staples down 1.09 per cent and Industrials down 0.94 per cent.
Looking at the ASX/S&P top 100 stocks, the best performers included Whitehaven Coal, which rose strongly again up 14.01 per cent followed by Pendal Group up 13.52 per cent and Origin Energy up 11.13 per cent. The worst performers included Virgin Money down 12.64 per cent followed by Northern Star Resources down 8.41 per cent while Treasury Wines Estates and Evolution Mining were both down over 6 per cent.
What's next for the Australian share market?
November has been a great month with the Australian stock market up over 11 per cent and now in positive territory for the calendar year after being down for most of 2020. While I remain confident that the market is bullish and will remain so until late January and possibly into February, it is currently running very fast given that prior to last Wednesday it only had one day down in the last 18 trading days.
This strong momentum will slow soon and, as a result, we may see the Australian stock market fall for one or two weeks, as we move into Christmas and given that last Thursday and Friday were both down days, we may have already seen the start of this short down move. It is also important to remember that during the second half of December, as we move closer to the festive season, the volume of stocks traded will decrease, which may be the catalyst for momentum slowing in the market.
That said, my expectation is that All Ordinaries Index will continue to move up in price over the coming eight weeks or so to break above the previous all-time high of 7,289 set in February of this year.
For now good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.