The Zip Co Ltd (ASX: ZIP) share price has plunged around 30% since 29 January 2025. While some investors may be fearful, one fund manager has decided instead that it's a buying opportunity and bought even more of the stock.
While we shouldn't invest just because someone else has bought into an ASX share, it can be a useful indicator of whether the investment professionals see an opportunity in the situation.
Let's look at what has happened with the buy now, pay later business and then discover why the fund manager decided to buy.
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Quarterly update disappoints
The fund manager Blackwattle noted in its latest update for its small-cap quality fund that the Zip share price fell 17.6% in January as the company's quarterly update for the three months to 31 December 2024 disappointed the market.
Blackwattle noted that at a group level, the business made $35 million of cash operating profit (EBITDA) for the quarter, representing 50% growth compared to the second quarter of FY24.
The fund manager suggested the market's focus and disappointment were related to a decline in the Zip revenue margin. However, the buy now, pay later business reaffirmed the existing operating expenditure growth guidance for the year.
Blackwattle noted that the margins for the three months to December are "always seasonally lower due to high holiday season" total transaction value (TTV), with revenue (meaning customer repayments) not being accounted for until the following half.
Why does Blackwattle like Zip shares?
The fund manager decided to use the recent weakness in the Zip share price to add to its position in the small-cap quality fund.
Blackwattle said that Zip's strong growth outlook hasn't changed, and it traded at (when the commentary was written) "only" 25x FY26's estimated price/earnings (P/E) ratio, with projected earnings per share (EPS) growth of more than 40%.
The fund manager is attracted to the "huge opportunity" in the US, where the company reported 39% TTV growth, rising active customers and net bad debts below expectations at only 1.5%.
Zip share price snapshot
Despite the recent decline in Zip's share price, the buy now, pay later business has soared 160% higher in the past year.
