Is the Zip (ASX:Z1P) share price a buy in the tech crash?

The Zip Co Ltd (ASX: Z1P) share price has been under the pump in recent days. Are the BNPL leader's shares back in the buy zone?

| 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 smashed in recent days as investors have sold out of ASX tech shares.

Heavy sell-offs in the US markets are continuing and we're seeing similar moves on the ASX. That's not good news for shareholders in some of the hottest tech shares right now.

The Zip share price is down 8.9% since Tuesday morning and could be heading even lower today. So, is now a good time to buy the dip and enter the buy now, pay later (BNPL) share?

rising arrow breaking down

Image source: Getty Images

Why the Zip share price is under pressure

There's no denying 2020 has been a strong year for global and domestic tech shares. Many of the biggest shares have been surging in value since the bottom of the March bear market.

That has all been against a backdrop of intense economic stress and recessionary conditions. Investors are a bit spooked right now and we've seen heavy sell-offs in US tech stocks this week.

Much of the value in ASX tech shares like Zip is based on future growth expectations. That's a hard thing to value right now, which has left investors wondering how high is too high for these tech shares.

The Zip share price is still up a whopping 81.4% for the year. I don't think it's panic stations by any means but is now a good time to buy in?

Is now a good time to buy?

The lofty valuations are an obvious concern for investors. Zip increased full-year revenue by 91% to $161.0 million as transaction volumes also jumped 91% to $2.1 billion.

However, the company still posted an adjusted loss before tax of $44.9 million. That can be beneficial for tax reasons but the point stands that the Zip share price is high for a company that isn't turning a profit (yet). 

Regulatory risk is also always a concern for the BNPL operators.

There's also increasing competition in the BNPL space. Major banks like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) are wading in.

Both of these big four banks announced yesterday that they were introducing no-interest, flat monthly fee card options.

That could open up the market and potentially entice merchants to go to the bank rather than pay fees to Zip.

Foolish takeaway

The Zip share price has been under pressure in recent days but is still up strongly in 2020. I don't think there is any cause for alarm just yet but I won't be entering as a first-time buyer right now.

Ken Hall 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. 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.

More on Technology Shares

A bright graphic showing neon green and red arrows in a downwards direction with a world map behind them in neon blue
Technology Shares

Does Macquarie rate Life360 shares a buy, hold or sell?

Does recent share price weakness present an opportunity?

Read more »

An oil worker in front of a pumpjack using a tablet.
Technology Shares

Why are shares in this ASX tech stock, which operates in the oil and gas space, charging higher?

Even after this share price jump, the shares could be good value.

Read more »

A man has computer-generated images rushing through his head, indicating an AI (artificial intelligence) concept of a communication network.
Technology Shares

Up 14% in April, is it too late to buy WiseTech shares?

The stock remains well below its highs and may now offer a more compelling opportunity.

Read more »

Focused man entrepreneur with glasses working, looking at laptop screen thinking about something intently while sitting in the office.
Technology Shares

Up 670%: Is it too late to buy this ASX defence stock?

This high-flying stock could still have further to run according to Bell Potter.

Read more »

Man happy to be holding a blue cloud representing cloud computing.
Technology Shares

3 ASX shares benefiting from the rise of digital infrastructure

Artificial intelligence and cloud computing need the help of these shares.

Read more »

Soldier in military uniform using laptop for drone controlling.
Technology Shares

Why this ASX defence stock is falling today despite a massive 660% run

EOS shares pull back as a contract delay offsets a solid quarterly result.

Read more »

Happy couple looking at a phone and waiting for their flight at an airport.
Technology Shares

ASX tech stock charges higher on big acquisition news

Let's see what the software company has announced this morning.

Read more »

A young man talks tech on his phone while looking at a laptop with a financial graph superimposed across the image.
Technology Shares

These beaten down ASX 200 tech stocks could rise 55% to 60%

Brokers think these stocks could rise strongly from current levels.

Read more »