Here’s why UBS tips the Zip share price to halve

The Zip Co Ltd (ASX: ZIP) share price is in the red.

Again.

Zip shares are down 4.1% in afternoon trade to 91 cents per share.

This follows on a 2.1% loss yesterday, when the buy now, pay later (BNPL) stock released its full-year results for the 12 months ending 30 June (FY22).

And those results were, well, less than stellar.

Despite reporting a record year of revenue of $620 million, up 57% from FY21, the company reported a jaw-dropping $1.1 billion loss from ordinary activities after income. That’s 63% more than the sizeable losses it suffered the prior year.

Remarkably, the Zip share price was up for almost all of the day, with gains of 2.3% on the board just 30 minutes before the closing bell.

Then investors appeared to get cold feet. Or perhaps re-examined the number of zeros in the net loss column. Either way, Zip shares lost 4.7% in the final 30 minutes of trade.

Is the company still overvalued?

Which brings us to UBS analyst Tom Beadle.

Beadle believes that even at today’s 91 cents, the Zip share price may be double what it should be.

According to Beadle (courtesy of The Australian):

In FY23, managing cash burn and demonstrating a clear path to profitability will be crucial for Zip. Whilst Zip have announced a range of initiatives designed to reduce cash burn, quantifying their precise impact remains difficult; in our view material uncertainty remains.

Indeed, as The Motley Fool reported yesterday, Zip’s cost of sales grew by an unenviable 76% in FY22. The company aims to reduce costs in part by ceasing its operations in Singapore and the United Kingdom. Zip also said it will focus on reducing mounting credit losses.

Nonetheless, UBS’ Beadle retains a sell rating on the company, with a 45-cent target for the Zip share price.

Zip share price snapshot

It’s been a rocky year for shareholders of the BNPL company, with the Zip share price down a painful 79% since the opening bell on 4 January. For some context, the All Ordinaries Index (ASX: XAO) is down 7% year-to-date.

The post Here’s why UBS tips the Zip share price to halve appeared first on The Motley Fool Australia.

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More reading

• Zip’s FY22 loss is 165% of its market cap. So why did its shares go up?
• Zip share price lifts despite $1 billion loss for FY22
• Earnings preview: Here are the ASX shares reporting today
• How did the Zip share price respond last time the company reported?
• Looking to buy Zip shares? Here’s what to look for in tomorrow’s results

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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