Afterpay Touch Group Ltd (ASX:APT) share price tipped to hit $11.15

716

The Afterpay Touch Group Ltd (ASX: APT) share price may have fallen sharply on Thursday, but it could be a very different story today after the payment solutions company was the subject of a positive broker note.

According to a note out of Goldman Sachs, the broker has upgraded Afterpay Touch’s shares from a neutral rating to a buy.

In addition to this, its analysts have lifted the price target on its shares from $6.30 all the way up to $11.15. This price target implies potential upside of almost 30% over the next 12 months.

Why is Goldman Sachs bullish on Afterpay Touch?

Goldman has made the move after upgrading its assessment of the company’s potential in the lucrative U.S. market.

It isn’t hard to see why. In comparison to Australia, the size of the population is 13x greater, the online apparel and footwear market is 14x bigger, and the in-store opportunity is estimated to be 15x larger.

But with a market of this size some investors have been concerned that the potential cost of customer acquisition could be significantly higher. Afterpay’s growth in Australia has come with exceptionally low customer acquisition costs and pleasingly Goldman doesn’t see it being any different in the United States.

It expects a retailer-driven push of the Afterpay product which results in early consumer awareness and rapid adoption at a very low cost. The broker has pointed to increasing searches for “Afterpay” in Google across U.S. states as proof of this strategy working.

If all goes to plan Goldman has forecast Afterpay Touch to generate total revenue of $229.5 million in FY 2019 and then $414.3 million in FY 2020. On the bottom line this is expected to result in earnings per share of 10 cents in FY 2019 and 25 cents FY 2020.

Should you invest?

Based on Goldman’s forecasts, this means Afterpay Touch’s shares are changing hands at 86x FY 2019 earnings and 34x FY 2020 earnings.

Although this is a premium to the market average, I think this is reasonable value given its current growth profile.

However, I feel it is important to note that its current valuation has already factored in quite a bit of success in the U.S. market. This means that failure in the U.S. would almost certainly lead to its shares plunging lower, making it a high risk investment.

For my risk profile the current risk/reward on offer is more than sufficient, which in my eyes makes it a great option along with fintech stars Bravura Solutions Ltd (ASX: BVS) and Xero Limited (ASX: XRO). But those with a lower tolerance for risk might want to look elsewhere.

 

Here’s how you can strike it rich in the share market…

The best way to strike it rich in the share market is to buy shares that are not only cheap, but growing quickly.

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

Best of all, the report is absolutely free, exclusively for readers of The Capital Club.

In this comprehensive free report, you’ll find the name of one ASX gold stock that’s not only profitable, but trading at less than 4 times forecast profits.

You’ll also discover the name of a company one fund manager has called the cheapest stock in the ASX 100, and you’ll read about the three catalysts that could push the share price higher in the next six months.

Finally, the report names one of the cheapest retailers trading on the ASX, a company that just picked up the assets of a distressed competitor on the cheap, paying just 2 times earnings. No wonder one top fund manager thinks its share price could at least double.

With the share prices of each of these 3 companies having the potential to double or more, you’ll want to act now. Simply click here or the button below, enter your email address, and this free report will be instantly sent to you.

See the 3 stocks