Zip Co Ltd (ASX: Z1P) shares have been on fire in 2020. Shares in the buy now, pay later (BNPL) leader have more than doubled and the company has a market capitalisation of nearly $4 billion right now. That might make some investors wary of buying in. But here are a few reasons I think the Zip share price still has further to run.
3 reasons I still like the Zip share price
1. Strong momentum behind Zip shares
Notwithstanding Friday’s falls, the Zip share price has been shooting higher in recent days and I think that’s an important consideration. Investors are clearly bullish on the BNPL share and I think strong support is important in these volatile times.
The Zip share price closed last week’s session at $7.56, up 16.49% on the previous Friday’s close. I think the momentum factor alone makes the BNPL share worth a look.
2. Cheaper than Afterpay on a relative basis
Relative valuation is a big deal, especially in a high-growth space like fintech. One of the big reasons I still like the Zip share price is simply because it’s considerably cheaper than Afterpay Ltd (ASX: APT).
Afterpay is a major rival although its $25.45 billion market capitalisation dwarfs Zip’s $3.90 billion valuation.
Neither company has actually made a profit despite the mad share price growth in recent years. Based on full-year earnings, the Afterpay share price is currently trading at roughly 48 times revenue while the Zip share price is trading at approximately 25 times.
3. Clear strategy for growth
Zip’s full-year results showed strong global and domestic growth which, I think, holds it in good stead for the future. The company’s profile continues to grow with strong penetration across Australia, New Zealand, the United States, the United Kingdom and South Africa.
Zip now has more than 4 million customers around the globe with 2.1 million in Australia and New Zealand. The acquisition of QuadPay in June 2020 opens up a new lucrative channel with more access to the $5 trillion US retail market.
The company’s FY20 revenue jumped 91.2% to $161.0 million after recording a 62% increase in customers to 2.1 million. Total transaction volume jumped 91% to $2.1 billion while net bad debt expense jumped 81 basis points to 2.24%.
All of these numbers point to a strong growth corridor which bodes well for further Zip share price growth.
Foolish takeaway
The Zip share price has been flying higher in recent times but I think there’s more potential growth in store.
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Returns as of 6th October 2020
More reading
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- 5 things to watch on the ASX 200 on Monday
- 3 excellent ASX growth shares to invest $3,000 immediately
- 5 things to watch on the ASX 200 next week
Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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