Is the Zip (ASX:Z1P) share price good value?

Are Zip shares good value after falling 15% over the last three months?

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The Zip Co Ltd (ASX: Z1P) share price has dropped 15% in three months. But could that make the buy now, pay later operator an interesting opportunity?

Some brokers don’t think so.

Sell rating on the Zip share price

One of the brokers that doesn’t believe Zip shares are good value is Macquarie Group Ltd (ASX: MQG). The analysts note that there are higher bad debts at the moment, notably in the US.

However, some areas of Zip’s growth seem to be slowing, so Macquarie currently has a price target of $5.70 on the business. That suggests that the broker believes the Zip share price could drop by almost 20% over the next 12 months.

UBS is another broker with a sell rating on the Zip share price. Whilst UBS is expecting Zip to generate strong growth, it will come with higher expenses as well.

However, Morgans believes that Zip shares are good value, with a price target of $8.87. The broker thinks that Zip can continue to grow at a good pace.

Expanding globally

The buy now, pay later company has plans to be a global player. It wants to support regional and global partners in multiple markets.

Last week it announced it had agreed to invest in ZestMoney, a leading Indian buy now, pay later operator. It already has 11 million registered users and has more than 10,000 online merchants on the platform with a presence in more than 75,000 physical stores.

Zip said that India has the potential to become one of the largest markets globally and by FY26 is forecast to have more than US$300 billion of buy now, pay later payment volume.

There are a few different drivers of that expectation.

Zip noted the changing consumer spending trends, particularly young aspirational individuals’ view of credit and how they use financial services.

Next, it said there is a current low penetration of online shopping. Only 100 million shoppers currently shop online, which is less than 10% of India’s population and is expected to increase to 220 million.

Another factor that could help ZestMoney and perhaps the Zip share price over time, is the population age demographics of India. More than half of the 1.4 billion population is under 30. More than 50% is expected to be aged between 15 to 49 by 2026, with this group expected to drive the Indian consumption economy into the future.

The price of this Indian investment is US$50 million. This investment has been executed using a similar strategy that has been successful in the US with Quadpay.

Zip’s global growth strategy

The buy now, pay later business has made a number of investments to expand its global reach.

It has officially launched in the UK and it’s “building momentum” here. Zip has also launched into Canada and Mexico. In FY21, Zip saw $1.8 million of revenue from the UK, from $25.2 million of transaction value.

Europe and the Middle East are also regions that Zip wants to grow. That’s why it has invested into regional BNPL operators Spotii and Twisto.

In FY21, $214.5 million of revenue came from Australia and New Zealand (from a total of $392.3 million). As time goes on, more of Zip’s revenue is expected to come from international sources.

Should you invest $1,000 in Zip right now?

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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