Why is the Zip (ASX:Z1P) share price falling on hard times?

The Zip Co (ASX: Z1P) share price has been falling the last couple of months. We take a closer look at what could be weighing down the shares.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Zip Co Ltd (ASX: Z1P) share price has been on a downward trend over the last couple of months. This comes despite the company reporting a robust result for the third quarter (Q3) of FY21 while pushing ahead with its expansion efforts.

At Friday's market close, Zip shares were trading hands at $8.06, down almost 10% for the week.

Below, we take a closer look at what could be weighing down the company's share price.

falling asx share price represented by woman falling through mid air

Image source: Getty Images

What's with the Zip share price?

Zip shares have been in the spotlight during recent times as pressure mounts on the buy now, pay later (BNPL) market.

The company recorded impressive figures across its operations in Australia, New Zealand, and the United States (Quadpay) for Q3 FY21. In its quarterly update released 13 April, Zip reported that key metrics jumped on both quarter-on-quarter and year-on-year comparisons following significant growth in all geographical markets.

Zip shares soared 16.9% on the back of its outstanding trading update, reaching a high of $10.61. However, investors were quick to take profit in the days following, sending the company's share price on a declining trend.

Furthermore, the announcement a few days later that Zip co-founders, Larry Diamond and Peter Gray were selling up to $1.5 million and $500,000 worth of shares, respectively, did not help matters. This put a dampener on investor sentiment, which led Zip shares to plunge 6.9% on that day alone.

The company also launched a $400 million senior unsecured convertible notes offering to support its growth in the United States. Unfortunately, the news wasn't enough to boost the Zip share price.

What are the brokers saying?

After Zip reported its third-quarter results, a number of brokers rated the company with varying price points. Analysts at Citi upgraded Zip shares to a 'buy' rating but trimmed its price target by 0.4% to $11.30. Boutique investment firm, Shaw and Shaw Partners raised its rating by 4.5% to a bullish $16.00. However, the latest broker note came from UBS which retained its sell rating and initiated a price of $6.75 for the BNPL company.

Foolish takeaway

While Zip shares have fallen around 10% in the last week, year-to-date performance stands above a 50% gain. It's worth noting that the company's shares reached an all-time high of $14.53 in mid-February, before backtracking to early 2021 levels.

On valuation grounds, Zip commands a market capitalisation of roughly $4.4 billion, with around 552.6 million shares outstanding.

Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on BNPL shares

Little girl looking down trying to zip up her pink windcheater.
BNPL shares

Zip share price dips amid cap raise rumours

The Zip share price closed 4.95% lower during a crummy day for the market.

Read more »

Woman looking at her smartphone and analysing share price.
BNPL shares

This ASX All Ordinaries stock is down 40% in a year, and the chair is buying up big

Over the past three months, he's spent more than half a million dollars of his own money buying more Humm…

Read more »

Three United States flags and a Wall St sign outside the US financial building.
BNPL shares

Guess which ASX All Ords share is planning a Nasdaq listing

Sezzle has its eyes on a US listing to expand its investor base.

Read more »

woman paying using paypal
BNPL shares

Zip share price gains amid global asset sale

Zip has begun the process of selling off assets after announcing it will cease operations in six more international regions.

Read more »

illustration of laptop with down arrow and the word zip representing zip share price going down.
BNPL shares

Why did the Zip share price crash 26% in February?

The Zip share price fell 26% last month, as the ASX BNPL stock faced headwinds from three fronts.

Read more »

woman thing about her payment
BNPL shares

Why is Choice gunning for ASX BNPL companies like Zip?

The Federal Government wants to make a decision on new regulations for BNPL companies by the year's end.

Read more »

unhappy investor considering computer screen
BNPL shares

Are Zip shares finally cheap enough to buy following last week's 12% dive?

Even though Zip shares look cheap, there are a few red flags to consider...

Read more »

a young woman sits with her hands holding up her face as she stares unhappily at a laptop computer screen as if she is disappointed with something she is seeing there.
BNPL shares

Zip share price lower on $243m first-half loss

Zip is still making large losses but is heading in the right direction...

Read more »