Zip shares: 3 reasons to buy and 3 reasons to sell

Zip Co Ltd (ASX: ZIP) shares have fallen back into the red this week.

At the time of writing, the buy now, pay later (BNPL) provider’s shares are down around 8% for the year-to-date, but they’re still around 1% higher than 12 months ago.

Zip shares have been volatile ever since the stock was caught up in an ongoing sector-wide tech sell-off. 

Technology and growth shares have also come under renewed pressure recently as investors reassess valuations and risk appetite. 

The ASX 200 tech shares rebounded an impressive 40% in June, but since the first of July, they have resumed their downward trajectory. 

For context, the S&P/ASX 200 Index (ASX: XJO) is roughly flat for the year-to-date at the time of writing, but around 1.5% higher than 12 months ago.

It’s not all bad news for Zip shares though. Here are three reasons to add the tech stock to your portfolio this financial year, and three reasons to sell up.

3 reasons to buy Zip shares

1. The company is financially sound

Zip’s financial results have been strong through the past few quarters. Its latest third-quarter FY26 results announcement in mid-April showed that growth has started to accelerate. The fintech business also upgraded its FY26 group cash EBTDA guidance to at least $260 million, from previous guidance of around $248.6 million.

2. Zip is aggressively expanding

Zip is rapidly expanding its product range and aggressively expanding its global presence, especially in the US. Late last year, the company announced that its US segment was expanding its partnership with the programmable financial services business Stripe. In early February, the company confirmed it is expanding its US presence by launching a new Pay in 2 product. Zip is also pursuing a dual sharemarket listing on the Nasdaq in the US. This could help drive an even opportunity for business expansion in the area.

3. Brokers tip a huge upside ahead

TradingView data shows that analysts are very bullish on Zip’s outlook over the next 12 months.

Out of 12 analysts, 11 have a buy or strong buy consensus on the shares, and the average $3.87 target price implies a potential 25% upside.

Some are even more optimistic and tip the shares to increase up to 74% to $5.40 a piece, at the time of writing.

3 reasons to sell Zip shares

1. There is increasing competition

Zip competes with major players including Klarna, PayPal, Block (through Afterpay), traditional banks, and credit card providers. Increased competition can pressure the company’s margins and growth.

2. Zip doesn’t pay dividends

If passive income is your goal, Zip isn’t the stock for you. The company is still in the growth phase, which means it is focusing its funds on growing the business rather than distributing products to shareholders.

3. Zip is highly sensitive to volatility

Zip is a growth stock, which means its share price is subject to investor sentiment, changes in interest rates, slower consumer spending, and even employment rates. It’s not a defensive asset which means it isn’t as resilient as some other alternatives during times of sharemarket volatility.

The post Zip shares: 3 reasons to buy and 3 reasons to sell appeared first on The Motley Fool Australia.

More reading

• What on earth is going on with Zip shares?
• Here are the top 10 ASX 200 shares today
• 5 ASX 200 shares I’d buy with $5,000 in July
• Here are the top 10 ASX 200 shares today
• Zip shares are flying again. Is this ASX 200 stock finally back in favour?

Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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.