The Zip Co Ltd (ASX: Z1P) share price was out of form in March and tumbled notably lower.
In fact, with a decline of 29% over the period, the buy now pay later (BNPL) provider’s shares were among the worst performers on the S&P/ASX 200 Index (ASX: XJO).
Why did the Zip share price crash lower?
There appear to have been a number of catalysts for the weakness in the Zip share price in March.
One of these was broad weakness in the tech sector during the month caused by rising bond yields. This hit the BNPL sector harder than most due to lofty valuations and concerns over the potential for borrowing costs to increase.
Fellow BNPL providers Afterpay Ltd (ASX: APT) and Sezzle Inc (ASX: SZL) fell 15% and 24%, respectively, over the month.
What else happened?
Also weighing on the Zip share price was a broker note out of UBS.
While the broker has been extremely bearish on Afterpay for some time, it had been relatively positive on Zip until last month.
On 10 March, UBS downgraded its shares to a sell rating with a $6.40 price target.
Even after its decline in March, based on the current Zip share price, this price target implies further downside of over 13%.
Despite noting that Zip is growing quicker than Afterpay at present and expecting its strong form to continue in the short term, UBS has concerns about Zip’s significant execution risks and mounting capital requirements.
It appears to believe that the company is likely to require additional external funding to support its receivables growth.
It’s not all bad news
While the performance of the Zip share price in March was disappointing, it is worth noting that it is still smashing the market year to date.
The company’s shares are up 32% in 2021, compared to a 15% decline by Afterpay and a modest 1.6% gain by the ASX 200.
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More reading
- These were the worst performing ASX 200 shares in March
- 5 things to watch on the ASX 200 on Thursday
- ASX 200 finishes quarter strongly, Zip partners with JB Hi-Fi, Suncorp gives flood update
- Is the ASX tech sector in for more pain?
- Afterpay (ASX:APT) also signs deal with JB Hi-Fi & The Good Guys
James Mickleboro 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’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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