I think you will find you are neglected one integral part in...

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cutty

3,308 Posts.

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24/03/20

03:52

Post #: 43658482
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Originally posted by Goldbull22: ↑

I have shared my opinion before but will again as you asked..

As Afterpay don’t make any money any record ever increasingly large losses every half, they are forced to raise money to survive.

The purpose of the stock market is to provide capital to business ventures, companies issue shares in their firm in exchange for funding for their ventures, a successful business reaches a point that it doesn’t need to raise money anymore and risk taking investors are rewarded with capital returns and dividends.

I’m the case of APT and the loss making venture it has been to date, they have been and will be forced to continue to issue shares to survive. This has a dilutionary impact on the issued capital and market cap.

now we have a situation where retail sales are about to slump coupled with a likely higher rate of bad debt defaults. So this will result in 2 outcomes in my opinion:

1) the growth trajectory completely stops as management don’t bother attempting a global expansion in the current market, then the slow cash burn of the current business model kills the share price by dilution

or

2) A huge surge in bad debts and use of the Afterpay product free falls as consumer spending freezes resulting in a massive drop in active customers and revenue.

either way the market will be forced to apply normal financial metrics not “alternative metrics” which mean a company with negative eps (earnings per share) won’t trade on a forward earnings multiple in triple figures.

Either outcome should see the market cap fall to around the 400-500 million mark which equates to around 1.50-$2 per share.

This is all my opinion only and do your own research, I have been bearish on APT from $15 all the way up to $41 and still am for the reasons above.. this corona virus no one predicted, what I did predict was the business model being unsustainable in times of economic shock or down turn.

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I think you will find you are neglected one integral part in your analysis, and it's common when analysing mostly growth oriented companies, which use most of their revenue on expansion.

Especially, with your comment they don't make money.

They actually do make money, they just choose to invest that money in their rapid expansion plan. I don't think it's fair to say a company with a low PE ratio isn't making money.

Bottom line is, in the face of adversity, there is no reason they can't reduce their growth related expenditure and reallocate those funds.

APT Price at posting: $8.90 Sentiment: None Disclosure: Not Held
2 Upvote

1 Great analysis

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