ZIP share price in focus
Zip Co was founded in 2013 and is a financial technology company. It offers a buy-now-pay-later (BNPL) service that is popular among retail consumers.
Zip allows customers to purchase items immediately and repay them over interest-free instalments.
Zip operates on a global scale with over 79,300 retail partners and 6 million customers. In September 2020, Zip acquired US-based BNPL company Quadpay to further establish itself in the US market.
Zip Co Ltd is a growth stock, and so it requires a different set of rules and may not be straightforward to value at times. Studies have shown that over 5-10+ years, it’s top-line revenue growth which explains a stock’s performance. That’s why it’s good to see Zip Co Ltd is able to grow revenue at 75.7% per year, a strong clip.
WES shares
Founded in 1914, Wesfarmers is an Australian conglomerate headquartered in Perth. Its main operations span Australia and New Zealand and include retail, chemical, fertiliser, industrial and safety brands and products.
Wesfarmers is a bit like a publicly listed private equity company. It has a long history of buying businesses, benefitting from their cash flow, re-investing in them and then selling them for a more attractive price. A good example of this might be Coles Group, which it bought in 2007 and spun out in 2018. However, by far (over 50%) of the company’s operating profit comes from Bunnings, the #1 hardware and home improvement business in Australia. Wesfarmers originally invested in Bunnings in 1987, buying the final 52% in 1994 for $594 million.
Wesfarmers has long been considered a leading blue chip stock on the ASX and is known for paying a consistent dividend. Other household names owned by Wesfarmers include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy.
ZIP share price valuation
As a growth company, some of the trends we would be looking for from ZIP include revenue growth, profit growth, and return on equity (ROE). Since 2021, ZIP has grown revenue at a rate of 75.7% per year to reach $868m in FY24. Over the same time period, net profit has increased from -$678m to $6m. ZIP last reported a ROE of 1.8%.
Since WES is more of a ‘mature’ or ‘blue-chip’ business, some of the metrics that might be important to us include the debt/equity ratio, average yield, and return on equity, or ROE. In FY24, Wesfarmers Ltd reported a debt/equity ratio of 131.4%, meaning the company is leveraged (it has more debt than equity). This can increase risk so it’s important that a leveraged company has stable returns and the capacity to pay interest on its debts.
As for dividends, since 2019 WES has achieved an average dividend yield of 3.4% per year.
Finally, in FY24, WES reported an ROE of 30.3%. For a mature business you generally want to see an ROE of more than 10%, so WES clears this hurdle.
It’s important to keep in mind that these are only a selection of metrics and don’t give us enough information to value the business or make an investment decision. To learn more about valuation, I’d recommend checking out one of our free online investing courses.
