The Zip Co Ltd (ASX: Z1P) share price has been one of the best performers on the All Ordinaries index on Tuesday.
The buy now pay later provider's shares were up as much as 8.5% to $6.27 at one stage today.
When its shares reached that level, it meant they were up an incredible 500% from their March low.
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Why did the Zip Co share price rocket higher today?
Investors have been fighting to get hold of Zip Co and other tech shares on Tuesday after a very positive night of trade on the tech-heavy Nasdaq index.
The Nasdaq index stormed 1.5% higher on Monday night thanks to strong gains from the likes of Microsoft, Apple, and Netflix. This led to the famous index hitting a new record high.
Australian tech shares have not only followed their lead, but also made up for their poor performance yesterday.
At the time of writing the S&P/ASX 200 Information Technology index is up a sizeable 3.5%. It was up as much 4.4% earlier in the day.
But unlike the Nasdaq index, the S&P/ASX 200 Information Technology index is not trading at a record high. In afternoon trade it is around 3% off its highest levels. This could mean there's still further gains ahead for our local tech stars.
Why is the Zip Co share price up 500% from its low?
Zip Co's shares have been on fire over the last few months after many in the market incorrectly predicted the impact of the pandemic on the performance of buy now pay later providers.
There was a lot of doom and gloom around the industry, with some suggesting that sales would plummet and bad debts would spike.
This simply wasn't the case and the shift to online shopping accelerated the adoption of the payment method without any material increase in bad debts.
For example, in FY 2020 Zip Co reported a ~64% year on year increase in transaction volume to $2.3 billion. This led to a 72% year on year increase in revenue to $161.2 million.
This was achieved with net bad debts of 2.24% at the end of the fourth quarter. While this was up from 1.63% a year earlier, it was nowhere near what some bearish analysts had predicted. Positively, leading indicators are pointing to net bad debts easing during the first quarter of FY 2021.
Also supporting the Zip Co share price was news of its expansion into the U.S. market via the acquisition of QuadPay. This will see Zip Co go head to head with rival Afterpay Ltd (ASX: APT) in the $5 trillion dollar market in FY 2021.
Post completion, Zip will have pro-forma annualised transaction volume of $3.2 billion, annualised revenue of $252 million, and more than 3.9 million customers.
Is it too late to invest?
I think Zip Co remains a great long term option for investors, especially if it can make a success of its expansion into the U.S. market.
Though, given the risks involved, I would suggest you limit any investment to just a small part of a diversified portfolio.
