The Zip Co Ltd (ASX: Z1P) share price is up another 10.75% today (at the time of writing) and is sitting at $6.39 a share. That makes it a 5-bagger ASX share (up ~500%) in just 3 months – and a double-up in just the past month alone. That’s right, Zip shares were trading for $1.05 a share back in mid-March, making this buy now, pay later company one of the best ASX shares to have taken a punt on in the depths of the share market crash.
So what’s going on here? And more importantly, are Zip Co shares still a buy today?
Why the Zip Co share price has hit the roof
Along with its BNPL arch-rival Afterpay Ltd (ASX: APT), Zip has benefited form a massive shift in investor sentiment since the panic that March brought. As the extent of the coronavirus lockdowns became clear, investors hit the panic button on BNPL shares.
It was feared that a lockdown-induced credit crunch and massive job losses would lead to a wave of defaults from BNPL users. Despite what the companies might say, Zip and Afterpay can be considered credit providers (in my view). That’s because they extend lines of credit to their users which can be defaulted on.
During the March sell-off, Zip (along with Afterpay) seemed to be treated like an ultra-risky bank share. That saw Zip shares fall more than 70% from ~$4.48 in February to $1.05 by mid-March. Afterpay shares also cratered, falling nearly 80% from around $40 in February to under $9 in March.
But since then, the sentiment has seismically shifted. After investors realised that (partly thanks to government assistance) Zip’s customers were not all about to default on their debts, the Zip share price rebounded in dramatic fashion. Between 19 March and 26 March, Zip shares were up more than 30%.
And then investors realised that the coronavirus pandemic might actually be helping payments companies like Zip Co. Cash as a payment method was already declining in popularity pre-COVID. But with cash usage presenting some hygiene issues during the lockdowns, customers turned to cashless solutions like Zip more than ever.
In fact, last month Zip reported that its revenue was up an astonishing 81% in April 2020. It also reported customer numbers were up 66%.
Is it too late to buy?
I don’t find a lot to like at the current Zip Co share price. Despite Zip being a great growth story, I think there might be a little bit of euphoria going for this company.
I do think Zip Co deserves a ‘high growth’ share price. But I don’t consider investing in a company after a 500% gain in 3 months a great idea. BNPL payments shares like Afterpay and Zip are highly volatile, and so I think a better strategy is to wait for a dip to pick some shares up, rather than chasing the gains of the past 2 months at today’s prices.
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Sebastian Bowen 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 owns shares of AFTERPAY T FPO. 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 Scott Phillips.