What's wrong with the Zip (ASX:Z1P) share price?

Why has the Zip Co Ltd (ASX: Z1P) share price slumped to a 6-month low despite tech shares recovering and the wider market running higher.

Lina Lim

Lina Lim holds a Bachelor of Commerce and Bachelor of Economics from Monash University (Australia). She enjoys the analytical aspects of the stock market and hopes that her readers can share the same passion that she does for investing. Lina is also currently undertaking a Masters of Teaching in secondary education, specialising in the Economics and Accounting curriculum. As an aspiring educator, she wants to model by example and to show her students the ropes of the sharemarket. In her spare time, Lina enjoys reading and travelling.

Published December 9, 2020 10:05 am AEDT

Zip Co Ltd (ASX: Z1P) shares have been far from inspiring lately, slumping to a 6-month low of $5.29 on Tuesday. The Zip share price has now fallen to levels not seen since before the company announced its entry into the United States via the acquisition of US-buy now, play later (BNPL) player QuadPay back in June. With the S&P/ASX 200 Index (ASX: XJO) just 6% away from its pre-COVID highs and a recovery in tech shares, what is wrong with the Zip share price?

Falling ASX share price represented by business man wearing box on his head with a sad, crying face on it. — Image source: Getty Images

It's not just Zip

Zip isn't the only BNPL company that's experiencing significant underperformance. As a matter of fact, all BNPL players except Afterpay Ltd (ASX: APT) and Humm Group Ltd (ASX: HUM) have been sold off recently with similar price charts.

The Splitit Ltd (ASX: SPT) share price fell 6% on Tuesday and is down almost 40% from its August highs. The $1.10 level also marks a 6-month low for Splitit shares. Similarly, the Sezzle Inc (ASX: SZL) share price is at 6-month lows and trading at nearly half its August high of $11.35. Even the newest BNPL addition to the ASX, Laybuy Holdings Ltd (ASX: LBY) has fallen below its initial public offering (IPO) price of $1.41 per share to close at $1.30 on Tuesday.

Afterpay holding on

The Afterpay share price is the only BNPL company on the ASX not to fit the broader narrative of being at a 6-month low and a 30-50% discount to its August highs.

This week, big brokers reiterated their stance on Afterpay shares with Credit Suisse initiating an outperform rating and $124.00 price target and Goldman Sachs retaining its neutral rating with a $99.90 price target. The brokers anticipate a strong growth outlook, especially in US operations.

One of the key differences between Afterpay and its competitors is the company's focus on international expansion. It launched into Canada in August with a number of large merchants now live, integrating or signed. Furthermore, it has its eyes set on the rest of Europe via the acquisition of Pagantis. Afterpay cites it is on track to complete the acquisition by the end of the 2020 calendar year, which will grant it an immediate licence to operate in Spain, Fance, Italy and Portugal, as well as pending licence passport applications in Germany and Poland.

UBS cautious on Zip share price

Last week, UBS Group raised its Zip share price target from $5.50 to $5.70 but retains its sell rating. Zip's October and November sales numbers were ahead of its expectations with the US tracking well. Despite the UBS upgrading its FY21 and FY22 earnings, it believes that current price levels limit value proposition, hence the sell rating.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.