The Zip Co Ltd (ASX: Z1P) share price has returned from its trading halt and is sinking lower.
In afternoon trade, the buy now pay later (BNPL) provider's shares are down 3% to $9.33.
Why is the Zip share price sinking today?
The Zip share price has come under pressure on Thursday after it surprised the market by launching another capital raising.
On this occasion, Zip followed the lead of rival Afterpay Ltd (ASX: APT) by raising $400 million via a convertible notes offering. These notes are due in 2028 and are convertible into fully paid ordinary shares of Zip at an initial conversion price of $12.39 per share.
The capital from the offering will support core and international growth opportunities
Is this a buying opportunity?
According to one leading broker, the weakness in the Zip share price could be a buying opportunity.
Earlier this week, analysts at Morgans put an add rating and $10.92 price target on the company's shares.
Based on the latest Zip share price, this price target implies potential upside of 17% over the next 12 months.
What did Morgans say?
Morgans has looked through Zip's third quarter update and was pleased with what it saw.
It commented: "Z1P has provided a 3Q21 trading update. Overall it was another strong quarterly performance from Z1P, in our view, highlighted by group revenue (A$114m), merchants (45.3k), and customers (6.4m) all rising 10%-20% on the sequential quarter (+80%-90% on pcp)."
"Credit quality remains sound, with Z1P's net bad debts falling to 1.78% from 1.93% at 2Q21. ZIP continues to point to a "healthy" global merchant pipeline overall," it added.
Once again, the US business was the highlight in Morgans' eyes.
It said: "In what is seasonally the weakest quarter for Z1P, Quadpay delivered strong sequential growth in revenue (+16%), transactions (+7%) and customers (+19%). As at March 2021, Quadpay is now annualising an impressive US$2.8bn of transaction volume. Quadpay merchant growth, +55% sequentially (now 13k) was a quarter highlight, while the Quadpay transaction margin remains above 2%."
Executing well
Overall, Morgans has been pleased with the company's execution. It also notes that the Zip share price trades an attractive discount to the Afterpay share price.
The broker concluded: "Z1P continues to execute well, delivering strong growth metrics across the board, in our view, with initial traction from the US expansion remaining highly encouraging. We continue to see longer term upside if Z1P can execute on its ambitions of becoming a global payments player. Z1P continues to trade at a significant discount to APT (EV-to-sales multiple of ~18x vs ~33x), a gap we think should narrow over time if Z1P continues to deliver."
