Why is the Zip (ASX:Z1P) share price falling on hard times?

The Zip Co (ASX: Z1P) share price has been falling the last couple of months. We take a closer look at what could be weighing down the shares.

| 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 on a downward trend over the last couple of months. This comes despite the company reporting a robust result for the third quarter (Q3) of FY21 while pushing ahead with its expansion efforts.

At Friday's market close, Zip shares were trading hands at $8.06, down almost 10% for the week.

Below, we take a closer look at what could be weighing down the company's share price.

falling asx share price represented by woman falling through mid air

Image source: Getty Images

What's with the Zip share price?

Zip shares have been in the spotlight during recent times as pressure mounts on the buy now, pay later (BNPL) market.

The company recorded impressive figures across its operations in Australia, New Zealand, and the United States (Quadpay) for Q3 FY21. In its quarterly update released 13 April, Zip reported that key metrics jumped on both quarter-on-quarter and year-on-year comparisons following significant growth in all geographical markets.

Zip shares soared 16.9% on the back of its outstanding trading update, reaching a high of $10.61. However, investors were quick to take profit in the days following, sending the company's share price on a declining trend.

Furthermore, the announcement a few days later that Zip co-founders, Larry Diamond and Peter Gray were selling up to $1.5 million and $500,000 worth of shares, respectively, did not help matters. This put a dampener on investor sentiment, which led Zip shares to plunge 6.9% on that day alone.

The company also launched a $400 million senior unsecured convertible notes offering to support its growth in the United States. Unfortunately, the news wasn't enough to boost the Zip share price.

What are the brokers saying?

After Zip reported its third-quarter results, a number of brokers rated the company with varying price points. Analysts at Citi upgraded Zip shares to a 'buy' rating but trimmed its price target by 0.4% to $11.30. Boutique investment firm, Shaw and Shaw Partners raised its rating by 4.5% to a bullish $16.00. However, the latest broker note came from UBS which retained its sell rating and initiated a price of $6.75 for the BNPL company.

Foolish takeaway

While Zip shares have fallen around 10% in the last week, year-to-date performance stands above a 50% gain. It's worth noting that the company's shares reached an all-time high of $14.53 in mid-February, before backtracking to early 2021 levels.

On valuation grounds, Zip commands a market capitalisation of roughly $4.4 billion, with around 552.6 million shares outstanding.

Aaron Teboneras 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on BNPL shares

Happy woman shopping online.
BNPL shares

Buying Zip shares? Here's why the ASX BNPL stock is rocketing higher today

Zip shares are smashing the benchmark on Thursday. But why?

Read more »

A young man sitting at an outside table uses a card to pay for his online shopping.
BNPL shares

Down 55%: Should I buy Zip shares?

This company is no longer just a BNPL growth story.

Read more »

an exhausted shopper slumps on an outdoor seat with various coloured shopping bags either side of her.
Share Market News

What on earth's going on with Zip shares?

The volatility has been relentless and isn't ending anytime soon.

Read more »

A young woman looks happily at her phone in one hand with a selection of retail shopping bags in her other hand.
BNPL shares

Why Afterpay owner Block shares are looking undervalued

A top fundie expects strong growth from Block shares.

Read more »

A boy with sad eyes pulls the zip over his mouth and nose while doing up a large jacket where the collar stands up at head height.
BNPL shares

Zip shares sink after court loss. Is this ASX comeback stock in trouble?

Zip shares tumble after losing a major trade mark case.

Read more »

A young woman looks happily at her phone in one hand with a selection of retail shopping bags in her other hand.
BNPL shares

Why are Zip shares storming higher on Thursday?

Investors are piling into Zip shares today. But why?

Read more »

A young woman with her mouth open and her hands out showing surprise and delight as uranium share prices skyrocket
BNPL shares

Why Zip shares rocketed 55% in April (and could keep rising)

It was a good month for owners of this growing company.

Read more »

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face.
Share Market News

Prediction: Zip shares could fly another 121% higher

Find out why analysts think the shares can rally even higher.

Read more »