The Zip Co Ltd (ASX: ZIP) share price tumbled 26.1% in February. 

Shares in the buy now, pay later (BNPL) company ended January trading for 69 cents apiece.

By the time the closing bell rang on 28 February, those same shares were changing hands for 51 cents.

So, why did the Zip share price come under so much selling pressure in February?

What headwinds did the ASX BNPL stock face?

It looks like the company was facing headwinds on three fronts this past month.

First, Zip shares found themselves amongst the top ten most shorted shares on the ASX for much of February. The ASX BNPL stock had a 7.4% short interest heading into the last week of the month.

Short interest alone won’t send a company’s share price lower. But high levels of short interest can be a signal of potential problems ahead. And this, in turn, can make other investors hesitant to buy shares.

Another headwind dragging on the Zip share price in February, along with most ASX BNPL stocks, came courtesy of the Australian Securities and Investments Commission (ASIC).

This followed ASIC’s announcement of its support for the most stringent of three new regulatory proposals facing the BNPL sector.

That proposal hasn’t been passed into law yet. But should it pass, Zip and other BNPL companies will be subject to essentially the same regulations as credit card companies.

This would include researching their customer’s financial situation before offering them interest free pay by instalment credit lines. And that could lead to fewer customers and lower revenue for the business.

Which brings us to the third headwind pressuring the Zip share price in February.

The company’s half-year earnings results.

While half-year revenue increased by 19% year on year to a record $351 million, Zip still reported a loss after tax of $243 million.

And in the new era of higher interest rates, investors are increasingly wary of investing in loss-making companies.

Zip share price snapshot

As you can see in the chart below, the Zip share price has struggled to hold onto any shorter-term gains, leaving the stock down 74% over the past 12 months.

The post Why did the Zip share price crash 26% in February? appeared first on The Motley Fool Australia.

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More reading

• Why is Choice gunning for ASX BNPL companies like Zip?
• Are Zip shares finally cheap enough to buy following last week’s 12% dive?
• Here are the 10 most shorted ASX shares this week
• Is Block one-upping Zip shares with its double-digit growth?
• Why Platinum, Qantas, Red 5, and Zip shares are dropping today

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 Zip Co. 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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