It has been another disappointing day for the Zip Co Ltd (ASX: Z1P) share price.
Much to the delight of the short sellers targeting the buy now pay later (BNPL) provider, its shares have fallen a further 5% to a new 52-week low of $1.54.
This means the Zip share price is now down 64% in 2022 and nearing multi-year lows.
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When will the Zip share price stop sinking?
That's the million-dollar question. Unfortunately, opinion is largely divided on where the Zip share price is going next, but clearly the bears are in control.
Among those bears are the team at UBS. In December, the broker actually upgraded the company's shares to a neutral rating with a $5.20 price target.
At that point, it felt the risk/reward on offer with its shares was reasonably attractive following a bout of share price weakness.
However, less than three months later, the broker has had a change of heart and last week downgraded Zip's shares to a sell rating and cut the price target on them by approximately 80% to just $1.00. This is the lowest price target the broker has ever had on the company and implies further potential downside of 35%.
For context, the Zip share price has not traded at that level since 2018. Since then, the company has gained a foothold in the massive US market through the successful acquisition of the QuadPay business and expanded across Europe and Asia. However, despite these developments its valuation is crumbling before our eyes. How sentiment has changed in the sector!
Why is it a sell?
UBS downgraded Zip's shares for a number of reasons. One was its disappointing half year result, which revealed a much larger than expected loss. The other reasons include dilution from its capital raising, a higher discount rate as part of its valuation model, delays in reaching profitability, and its uncertain outlook.
One small positive, though, is that the broker suspects that the company's recent capital raising will be its last for working capital purposes. It appears optimistic that Zip's cash balance will be sufficient to see it through to profitability.
Though, clearly for UBS, that positive isn't enough to offset the negatives listed above.
