Is Zip Co Ltd still a buy after 20% surge?

The Zip Co Ltd (ASX: Z1P) share price gained 22.11 per cent on Monday as the company released its quarterly results.

So, is it too late to buy?

Zip Co, previously known as zipMoney Ltd (ASX: ZML), provides digital payments services, facilitating transactions for consumers and merchants through products including zipPay, zipMoney and PocketBook.

The company has been gradually building its customer base and recently announced it had signed up craft and homewares company Spotlight Retail Group and outdoor and adventure retailer Anaconda.

In November last year Zip Co announced that online retailer Ltd (ASX: KGN) had signed up to its Zip platform, news which investors responded to enthusiastically and sent the Zip Co share price up by 6 per cent.

In August Zip Co’s share price was up 18 per cent in a day after it announced Westpac Banking Corp (ASX: WBC) had taken a $40 million equity stake in its business.

For financial year (FY) 2017 Zip Co reported that it had generated revenue of $17 million, up from $3.2 million for the previous year and representing a gain of 431 per cent.

The increase in revenue was spurred by an increase in the company’s transaction volume which went from $51.5 million for FY 2016 to $230.7 million for FY 2017, an increase of 348 per cent.

But Zip Co’s loss for FY 2017 also increased, going to $20.2 million and more than doubling FY 2016’s figure of $9 million.

Although that could soon change with the Board announcing at the Zip Co AGM in November that it “remains confident about achieving cash flow positive on a monthly basis by the end of FY 2018”.

Zip Co announced on Monday that it had achieved “record quarterly” revenue of $9.3 million for the second quarter of FY 2017, up 35 per cent on the previous quarter.

Transaction volume for the second quarter also increased, up 47 per cent on the previous quarter to $140 million.

As such there are signs the Board has good reason for its confidence in the company soon becoming cash flow positive.

While there are positives signs that the Zip Co share price will keep rising, it would be prudent to wait and see if management can deliver on the optimistic forecast rather than having a punt.

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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