There were strong share price gains across many of the companies within the S&P/ASX 200 Index (ASX: XJO) during April. This was largely due to rising optimism that the worst of the coronavirus crisis could be behind us, following prior heavy share price falls during March and the latter part of February.
The Afterpay Ltd (ASX: APT) share price performed particularly well last month, with a phenomenal 66% rise.
Other strong performers during April include media and outdoor advertising company oOh!Media Ltd (ASX: OML) and shopping centre operator Scentre Group (ASX: SCG).
So, what drove this stellar growth in the Afterpay share price last month?
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Impressive business update
A very positive recent business update in mid-April is no doubt a key reason.
Afterpay revealed that it had seen an impressive 97% increase in underlying sales for the first 3 months of the year compared to the prior corresponding period. This was driven by a 40% increase in Australia and New Zealand (ANZ) region sales, and a massive 263% increase in US sales.
In addition, Afterpay's income margins for the month of March and for FY2020 year-to-date were actually higher than for the last 6 months of 2019, despite the impact of the coronavirus pandemic.
Also, pleasingly, Afterpay's ANZ region, which accounts for over half of overall sales, continues to be highly profitable and underlying cash flow positive.
The company also believes that despite the challenges that the global retail market faces, it is still adequately capitalised to support operations for a number of years based on its current financial position.
Uncertainty still lies ahead for Afterpay
Despite the positive year-to-date update, underlying sales did start to ease off in the second half of March and early April. This came as the impact of government-forced lockdowns in Australia, and especially in the US and UK which have been hit particularly hard by COVID-19, started to impact underlying sales.
The US, in particular, could be a concern for Afterpay going forward as it is the company's biggest growth market, and currently accounts for around 40% of underlying sales.
The US now accounts for around a third of all coronavirus cases globally. And while some states in the US have begun to ease restrictions, it looks likely that retail conditions will be very challenging in the US for months to come.
It should also be pointed out that Afterpay's strong share price gain in April follows heavy falls during February and March. The Afterpay share price, which is currently trading at $29.70, is still well below its mid-February high of $41.14 which it reached prior to the coronavirus crisis.
Also, at the time of writing, the Afterpay share price is down by 5% today, which could be a sign of more share price volatility in the months ahead.
