Zip Co Ltd (ASX: ZIP) shares have continued to take a beating with losses of 80% in 2022.
Investors are most likely wondering how low the Zip share price can go following the recent market pullback.
Just last week, the buy now, pay later (BNPL) company's shares hit a fresh multi-year low of 86.5 cents before holding ground for the time being.
Currently, Zip shares are down 4.89% to 87.5 cents.
So, if you are one of the unlucky investors that stayed on for the Zip rollercoaster ride, is now the time to cut your losses?
Why has the Zip share price been sinking?
The spotlight has been on the Zip share price as selling pressure intensifies throughout the BNPL market.
During the pandemic, a throng of customers adopted the alternate way to pay for purchases in-store and online.
The company recorded strong top-line growth and still does to this day. However, it's the rising bad debts and widening losses that are weighing down Zip shares.
In its half-year results, the company noted that net bad debts stood at $115.4 million. This compares to $22.4 million written off in the prior comparable period.
On the bottom line, Zip registered a loss of $153.6 million compared to the loss of $139.8 million in H1 FY21.
Management acknowledged a shift in the external environment, arguably faster and more severe than first forecast.
Expansion into less mature markets and the easing of government stimulus packages in the United States have caused credit headwinds.
In response, the company has refined its strategy but it is still too early to tell if this will pay off.
Not helping matters is the sharp decline of the S&P/ASX All Technology Index (ASX: XTX), down 30% year to date.
So, is now the time to cut your losses?
With the Zip share price going further down the rabbit hole, you might be wondering if you should hit the sell button.
This evidently comes down to your level of investment, risk tolerance, and how far deep in the red you are.
If you bought Zip shares more than a year ago, you're likely sitting on losses of more than 80%. That means the share price would need to accelerate 400% to make your initial investment back.
And if you're down 90%, that's a 900% increase needed.
It's important to take emotion out of any trade and acknowledge when you've made a bad investment. Always set up a trading plan before you make the decision to invest and stick to your guns.
Of course, selling Zip shares at a loss will offset the tax gains accrued in the current financial year. This is a popular strategy, particularly with tax time around the corner.
If so, you can always look to reinvest the leftover funds into founder-led, high-growth ASX shares.
