APT as the 12th largest company by valuation on the ASX, is now rivaling massive digital retail companies it operates with. Lets take a look at eBay, another company that also takes a nice cut from customer to business transactions offering a digital purchasing platform, to get a little perspective on relative valuations. eBay remains slightly ahead of Afterpay on market capitalisation at $50 billion AUD vs $42.5 billion as of closing prices. It makes a handy relative comparison with its USD $39 billion value being near the AUD value of APT using average analysts expectations of future revenues and earnings (we can skip f/x conversion):
So on a like for like basis, eBay makes about 20 times as much revenue, 80 times as much underlying profit (APT still negative net of course - lets do it a favour and use underlying profit), but is roughly valued the same as APT
The APT story is of course all about the future and continued growth. The problem is its price has massive growth built in. Even with that growth those earnings still pale in comparison to eBay, underlying expected earnings for eBay still 18 times larger in 2022.
Hence APT trades at a marginally less absurd 173 times forward underlying earnings for 2022 (than its 2160 for 2020), versus the 9 for eBay. Price to sales are of course off the chart as well.
APT share price may continue up on its merry way up but investors should be aware they are paying silly multiples against forward earnings predicted by analysts that already contain very large growth presumptions.
Lets do some simple math. Many analysts use 10 year forward earning modelling for earnings based valuation. Lets be generous and say it doesn't have to match eBay across the 10 years. Lets just say it has to match it in the final year to warrant trading at the same market capitalisation. Lets also be generous and assume eBay's earnings growth falls steadily from the 10% in 2022 by 1% a year. Its 2029 earnings will be $6,600,000,000. APT to get to the same earnings would have to grow it 2022 earnings by a compounded 60% for the 2022-2029.
That's right folks to even get to the same earnings in 2029 as eBay, not even the total earnings across 10 years, APT has to grow its underlying earnings at a continuous 60% per year - and that with the massive assumption of eBay's earnings growth falling from 10% to 3%.
For those of you that think that is at all likely I suggest you need to go and look at typical profit growth rates. APT was an early innovator in a now very crowded market. If you think it can achieve 60% yearly profit growth from 2022-2029, I want some of what you are smoking. I will give you a clue, not even Amazon comes close.
APT is priced at higher price to forward earnings and sales to even the might Tesla, generally accepted as the most over-valued stock in the world - its valuation multiple metrics are still lower than APT's should any of the exuberant buyers of APT ever consider something as silly as forward earnings in their investment approach.
(Short for full disclosure - yes offside at present, but far less offside than when I held APT through COVID-19 knowing APT's potential revenue/profit growth, which remain strong, but not strong enough to warrant this valuation)
