It might be an awkward time to initiate coverage for the Afterpay Ltd (ASX: APT) share price as tech shares across the board are being sold down.
However, Credit Suisse has done just that today, initiating coverage of the Afterpay share price with an outperform rating. Perhaps this is the positivity the stock needs to stop freefalling.
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The Afterpay share price takes a dive
The Afterpay share price is once again under relentless selling pressure today. Its shares are down 8.40% at the time of writing, dragging its year-to-date returns to a surprising -13%.
Much of the weakness in the Afterpay share price is driven by factors outside the company's control. Rising bond yields has been an overarching factor that has severely impacted ASX 200 tech shares in recent weeks.
Credit Suisse rates Afterpay as an 'outperform'
Credit Suisse is bullish on Afterpay shares with its analysts expecting Afterpay sales to potentially increase almost six-fold from FY20 levels over the next five years. In FY20, the company delivered underlying sales of $11.1 billion, implying a potential $66 billion sales by FY25.
While other brokers may have pointed to risks and challenges for buy now pay later players including increasing competition, fund risks and a reduction in e-commerce sales post-COVID, Credit Suisse takes a more optimistic view for the industry.
The broker points to structural growth for the BNPL industry as a result of higher e-commerce penetration and the shift away from credit cards. It also points to the emerging millennial and Gen Z population whose retail spending power is expected to rise strongly in the coming years.
Credit Suisse believes Afterpay is poised to gain a higher share of total payments given its position as a leading BNPL player. It also points to Afterpay's value proposition as being something more than just a payment provider.
The coverage provided a target price of $124.00, which would represent an upside of ~20% compared to today's prices. However, it is important to keep in mind that factors such as rising yields could continue to drag the tech sector and the Afterpay share price along with it.
Afterpay being more than just credit
Afterpay has a number of exciting plans for FY21. Besides its planned expansion into Europe and continued growth in the US, the company has announced a new app that could branch out existing revenues and products.
Afterpay Money is a new stand-alone app built to help Australians manage their money. This app comes with classic banking features including a savings account and linked debit account. Users can have a salary paid into the account and add savings goals to better manage their money. While this is an app powered by Afterpay, the deposits will show up in the Westpac Banking Corp (ASX: WBC) balance sheet as part of its partnership.
