Buy now pay later provider Afterpay is continuing to outperform most other financial services stocks on the ASX despite slowing growth in its Australian business and eclipsing  most share price targets of analysts.Afterpay scrip closed at A$31.94 on Friday, up more than 23 per cent since the last week of August when the company unveiled a $43 million loss for the 12 months to the end of June. While some analysts remain bullish on the stock, others are casting doubt on whether the $8 billion market valuation of the company is justified given that it accounts for only 0.5 per cent of all electronic payments transactions in Australia and New Zealand.The idea that companies such as Afterpay are poised to disintermediate traditional payments providers in Australia and overseas is coming under intense scrutiny.An analysis of Afterpay's financial performance last year by payments advisory firm, McLean Roche, suggests that the company is overvalued.McLean Roche principal Grant Halverson believes that local investors have not appreciated the relatively high rate of bad debts being incurred by Australian buy now pay later providers."Bad debts for Australian BNPL providers is five times higher than their European peers," he said."As a percentage of sales Klarna's bad debts are running at around 29 basis points, but if you look at Afterpay, Zip and Flexi the rate is between 100 and 130 basis points."Halverson said Afterpay's bad debt metrics also compared unfavourably with profitable mid-tier banks such as Bendigo and Adelaide Bank.Bendigo, which has a market worth of around $6 billion, recently reported bad debts of $50.3 million on a revenue base of more than $1.6 billion. However, Afterpay reported bad debts in Australia and NZ last year of $58.7 million on revenue of only $200.9 million, the McLean Roche study found.  Halverson says bad debts are now rising faster in the Afterpay business than sales."You can't justify the market valuation of the company on this and other performance measures," he said."There's clearly an investment bubble in the buy now pay later sector."There's mass exuberance which is not justified by the business model or financial performance against overseas peers."Halverson said it was also difficult to justify Afterpay's $8 billion market cap, given that it was roughly double the value of sales it generated last year.All up, McLean Roche found that more than $10 billion was now invested in the listed BNPL sector, even though listed industry participants had aggregate sales of only around $8 billion. "The prevailing Aussie investment market view on Buy Now Pay Later companies is, they will reshape the way Aussies and New Zealanders pay for things and then conquer the world," he said."But BNPL providers are a long way from making that a reality because the sector only accounts for 2.4 per cent of monthly sales in the electronic payments market and the rate of growth in their businesses is slowing in Australia and New Zealand."Afterpay's share price has more than tripled in value since the stock was trading at 9.95 at the beginning of