The Zip Co Ltd (ASX: Z1P) share price is at a six-month low, does that mean it’s worth considering as a buy?
How far has the Zip share price fallen?
Shares of Zip are as low as they’ve been over the past six months. It has dropped 17% over the past month and it’s down 46% since 26 August 2020.
This is an interesting divergence of performance compared to the Afterpay Ltd (ASX: APT) share price which has been steadily rising over the last six months and is close to its all-time high.
Sometimes there can be a variance in the share prices of businesses in the same sector, even if they are demonstrating similarly strong growth metrics. This can be an opportunity, sometimes.
Last month the company said that its FY21 year to date revenue was $96.7 million, up 91%, for the first four months of the year. October’s monthly revenue was $27.6 million. Including Zip Business, total revenue was $100.2 million, with $28.4 million recorded in October.
Zip US, which operates under the QuadPay brand, saw October deliver $160.6 million in transaction volume (up 200% year on year), with $11.4 million of revenue and more than 2.5 million customers.
So why is the market punishing Zip?
It’s hard to say exactly why the Zip share price is falling. Each trade consists of a different buyer and selling, who are transacting for different reasons. For each seller, there’s a respective buyer.
Zip is a rapidly growing business with global growth aspirations. Its total transaction volume keeps growing every update. The underlying business is bigger than it was in June.
There are certainly large competitors that want to take market share from Zip (and Afterpay) like Klarna and PayPal. But the key will be whether Zip can maintain its margins. The profit margin is very important when you’re working with such a big transaction volume.
So it’s a good time to jump on Zip?
Compared to Afterpay
, I think Zip shares make more sense. However, that’s just one comparison. I’m not sure how much profit these buy now, pay later businesses can make over the long-term, which is why I don’t think I could ever invest in them for my own portfolio.
There are other payment businesses already generating good operating profit like Pushpay Holdings Ltd (ASX: PPH) and EML Payments Ltd (ASX: EML). They just aren’t in the buy now, pay later space.
