@Shiz
Thank you for the kind words, even if they are overly generous.
I think a bit of humility in the markets goes a very long way (having learnt painful lessons of hubris myself in the past), so I certainly wouldn’t ignore the value investors entirely. The difference in valuation between value and growth is the greatest I have ever seen, and I see a lot more green shoots and opportunities within value names compared to growth (my portfolio, for the first time, is more heavily weighted to value names).
That being said, despite trimming my holdings somewhat, APT remains a 20-25% position for me. In terms of valuation- my own rough calculations only, and I would encourage others to DYOR etc.
I expect revenue of 1-1.2B FY21 with normalised net margins of 25% across the board, giving a normalised profit of ~300m. At a growth rate of 100%, that gives a normalised PE of 100 and normalised PEG of 1. These are only fair valuation metrics with pretty generous assumptions, so it certainly isn’t cheap and there isn’t much of a margin of safety. The most critical elements are:
1. Continued rapid growth (still a long way to go, thankfully)
2. High margins
- Afterpay has substantially better margins than competitors in all markets. I think this is a combination of two way network effects, first mover advantage, flawless execution and better human capital
3. Macroeconomic conditions creating demand for the product (again likely ongoing).
The most important of these, by far, is growth- the faster the growth rate, the quicker APT grows into its valuation. APT in just over 5yrs will do 1B in revenue- that is absolutely phenomenal. It is not unforeseeable that the business will do 10B in revenue over the next 5-10yrs, and if that occurs, the valuation will continue to look after itself.
As such, despite the fairly full valuation I am holding a substantial amount of stock and am comfortable doing so, although I certainly haven’t been buying (I bought enough in March!). It certainly wouldn’t surprise me if there is a breather at some stage or another.
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@ShizThank you for the kind words, even if they are overly...
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