The Zip Co Ltd (ASX: ZIP) share price is edging higher at the time of writing.
Shares in the ASX buy now, pay later (BNPL) company are up 1% in the lunch hour on Thursday, trading for 52 cents apiece.
But there will need to be a lot more buyers in the pipeline to send the stock back to the levels it was trading at a year ago.
On 27 April 2022, the Zip share price stood at $1.01. Meaning shares have tanked a painful 49% over the year.
As for investors who bought in near the all-time highs in mid-February 2021, they'll be nursing losses of 96%.
Ouch.
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With the Zip share price halved in 12 months is it time to buy?
Despite the massive drop in the Zip share price, I have no plans to buy the ASX BNPL stock.
Now that doesn't mean I plan to short the stock either.
It's simply that there's far too much uncertainty ahead, in my view, to invest in the company's future at this stage. And when I invest my hard-earned money, I like to have an element of certainty.
While Zip's latest quarterly results showed a year-on-year improvement in revenues and transaction volumes, credit losses remain a concern, in my opinion. Credit losses in Australia, a core market, increased over the last quarter to 2.6% of total transaction volume.
With inflation in Australia and much of the world continuing to run above central bank targets, I expect we'll see at least one more interest rate increase from the RBA and the US Federal Reserve.
Higher rates amid still high inflation are likely to continue squeezing some of Zip's customers. So those credit losses may be tough to bring down. In fact, they could well go higher over the coming year.
Keep an eye on those regulations
Then there are looming new regulations that could throw up headwinds for the Zip share price.
In February, the Australian Securities and Investments Commission (ASIC) revealed it supported the most stringent of the new regulatory proposals. This would see ASX BNPL shares subject to very similar regulations faced by credit card companies. That could in turn see their customer numbers dwindle, further pressuring the Zip share price.
Which brings us to the competition. Namely those credit card companies and the big banks.
I like to invest in shares with a good-sized moat, or barriers to entry. But, as we've already witnessed over the past year, there's nothing stopping banks or credit card companies from offering their own interest-free, pay-by-instalment products.
So, despite the 49% fall in the Zip share price over the year, I think there are better opportunities for ASX investors, like the big four banks.
