Australia’s top brokers have been busy adjusting their estimates and recommendations again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

Audinate Group Ltd (ASX: AD8)

According to a note out of UBS, its analysts have retained their buy rating and lifted their price target on this digital audio-visual networking technologies provider’s shares to $8.00. This follows the release of a better than expected first quarter update. It was impressed with its performance in a tough environment and notes that sales are back to pre-COVID levels. It appears optimistic that this positive form will continue throughout FY 2021 and Audinate will achieve its forecasts. I agree with UBS and feel that Audinate could be a great long term option.

IDP Education Ltd (ASX: IEL)

A note out of Morgan Stanley reveals that its analysts have retained their overweight rating and $24.00 price target on this student placement and language testing company’s shares. The broker notes that its largest shareholder, Education Australia, is considering a further sell-down of its holding to provide financial support its own shareholders – 38 universities. Morgan Stanley doesn’t expect a sell-down to have any real impact on the company’s relationships with these universities. In light of this, it appears to see the recent share price weakness as a buying opportunity. I would have to agree with the broker on this one.

Redbubble Ltd (ASX: RBL)

Analysts at Goldman Sachs have retained their buy rating and lifted the price target on this ecommerce company’s shares to $6.25. This follows the release of a first quarter update which revealed a 116% increase in revenue and material gross margin improvements. Goldman was also pleased to see that this growth was not driven purely by face mask sales. In fact, face mask revenue fell from 27% of revenue in July to 14% of revenue in September. This has given the broker greater confidence that its strong form can be maintained and led to Goldman increasing its earnings forecasts. I agree and feel Redbubble could be worth a closer look.

More reading

• The Medibank (ASX:MPL) share price rockets on broker upgrade
• Why Beacon Lighting, Medibank, Redbubble, & Tyro shares are racing higher today
• How this fund manager’s 60% UP in the year of COVID-19
• Should you stay invested in an ASX share after a strong run?
• ASX 200 rises, Pro Medicus (ASX:PME) wins another global contract

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 AUDINATEGL FPO and Idp Education Pty Ltd. The Motley Fool Australia has recommended AUDINATEGL 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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The Aussie Broadband Limited (ASX: ABB) share price has had a fantastic first day on the ASX boards.

Earlier today the internet provider’s shares were up a massive 122% from its IPO listing price of $1.00 to $2.22.

The Aussie Broadband share price has dropped back a touch since then but is still up 90% to $1.90 at the time of writing.

Aussie Broadband IPO

This morning Aussie Broadband listed on the Australian share market after raising approximately $40 million through a partially underwritten initial public offering of ~40.45 million at $1.00 per share.

The funds raised by Aussie Broadband are going to be used predominantly on the deployment of a dark fibre network. This project is due to be completed within two years and have a minimum useful life of 25 years. Management expects it to improve the company’s ability to provide redundancy and increase capacity to meet market demand.

According to the release, the IPO was strongly oversubscribed, being supported by existing institutional investors, new institutional investors, and clients of the lead manager, Shaw and Partners.

Combined with the shares held by existing shareholders and noteholders, this gave Aussie Broadband a market capitalisation of $190.5 million.

Though, given its strong gain today, Aussie Broadband’s market capitalisation is now just over $360 million.

What is Aussie Broadband?

Aussie Broadband is an Australian owned and operated telecommunications company competing with Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPG).

It provides nbn subscription plans and bundles to residential homes, small businesses, not-for-profits, corporate/enterprise, and managed service providers. It also offers a range of other telecommunications services including VOIP, mobile plans, and entertainment bundles through its partnership with Fetch TV.

At the last count, the company had over 300,000 residential, small business, and enterprise customers.

In FY 2020 it generated total revenue of $190.49 million, a 91% increase year-on-year from revenue of $99.65 million in FY 2019.

Management commentary.

Phillip Britt, Managing Director of Aussie Broadband, commented: “Our business has grown strongly over the past three years due to our reputation for providing high-quality internet at home, business and enterprise levels, along with our transparent customer service to ensure our customers have a seamless end to end experience.”

“Our investors are telling us they want to become part of a business that is operating with incredibly strong ethics and values, that is contributing in unique ways to the Australian community and economy, that has a heart and treats its people well. They want to be part of the Aussie Broadband story, as well as see their capital grow with us,” he added.

More reading

• 2 safe ASX shares for your retirement portfolio
• Top brokers name 3 ASX shares to buy today
• Could this small cap ASX telco become the next Telstra (ASX:TLS) share price? 
• Why it’s always a good time to buy blue chip ASX shares
• Is the Telstra (ASX:TLS) share price a buy for 2021?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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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There’s good news and bad news afoot for ASX commodity investors owning shares or looking to add to their shareholdings.

First, the bad news.

Coal, Australia’s second largest export earner after iron ore, is coming under renewed pressure.

As you may know, there are two types of coal, thermal – burned in power plants to generate electricity – and coking, which has a higher energy content and is primarily used to make steel. Australia has an abundance of both.

Thermal coal has long been under pressure from environmental groups for its carbon emissions and other pollutants. Some nations, like India and China, are still rolling out new coal fired power plants. But the longer-term outlook sees the demand for thermal coal steadily declining as it’s replaced by renewables and electricity generated from cleaner burning LNG.

Coking, or metallurgical coal, is likely to remain in demand for the foreseeable future.

Although Japan remains Australia’s biggest market for coal, China’s continuing infrastructure and building boom demands a lot of new steel. That in turn requires iron ore and, generally, coking coal.

And herein lies the bad news for ASX coal shares.

The Middle Kingdom strikes back

Political ructions between the Chinese and Australian governments have already seen China lash out economically, hitting both Australian wine and barley producers.

In its latest move, which the Chinese Government remains mum on, Australian coal exports are being deferred by Chinese buyers. Inauspiciously, it appears other coal exporting nations are unaffected.

According to the Australian Financial Review:

Australia’s biggest coking coal exporter, BHP, said on Wednesday that Chinese customers had asked for coal shipments to be deferred, in the first public confirmation that Chinese policy was hitting Australian miners…

Senior figures in the global coal industry are increasingly convinced that political tensions between Australia and China are behind the deferrals, amid signs that shipments from other exporting nations have been able to enter China.

While BHP Group Ltd (ASX: BHP) is Australia’s largest coking coal exporter into China, it’s the ASX shares that derive most – or all – of their income from coal that could suffer the most if China keeps its ports shuttered to Australian imports.

Even companies like Whitehaven Coal Ltd (ASX: WHC), which earned less than 2% of its revenue from Chinese buyers last year, will come under increased pressure if coal prices continue to fall. Coking coal prices are already down 10% since 6 October.

The Whitehaven share price is only down 2% since 6 October. But it’s been a rough year for the miner, with its share price down 59% so far in 2020.

The declining price of coal and potential import bans from China couldn’t come at a worse time for Queensland coal miner, New Hope Corporation Limited (ASX: NHC). New Hope just announced it is laying off as much as 75% of its workforce as it struggles to gain the required approvals for its New Acland mine.

At the time of writing, the New Hope share price is down 42% year to date.

After steep falls like this, you may be tempted to believe these coal shares are at or near their bottom. And while that may be true, I believe investing in these shares today would be more akin to catching a falling knife than buying at a comfortable dip.

So, what was that about good news?

Food prices up amid booming Aussie harvest forecasts

Australia not only has an abundance of coal, it also has a huge agricultural footprint with plenty of growth potential ahead.

Last month, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) released its latest updated crop report. It revealed huge expected growth among much of Australia’s winter crop production, with wheat up 22% from its 10-year average and barley up 23%.

Moreover, noting the favourable weather conditions, ABARES forecasts a 194% increase in Australia’s summer crop output.

The International Monetary Fund (IMF) added its own bit of good news for ASX agricultural shares with its projection that food prices will rise 0.4% this year. That may not sound like much, but remember the world is largely in a deflationary period right now, with the price of most goods flat or falling.

One ASX share that’s well placed to benefit from a bigger harvest and higher prices is Graincorp Ltd (ASX: GNC). Much of GrainCorp’s revenues are derived from storing and transporting grains.

The Graincorp share price is up 11% year to date, at the time of writing. By comparison, the All Ordinaries Index (ASX: XAO) is down 7% in 2020.

Another ASX share that I believe has a lot of potential for growth in the current environment is Costa Group Holdings Ltd (ASX: CGC). Costa Group is Australia’s largest grower, packer and marketer of fresh fruit and vegetables.

The Costa share price is up 49% year to date.

More reading

• Why the New Hope Corporation (ASX:NHC) share price is down
• Why Dubber, New Hope, Pro Medicus, & Rio Tinto shares are dropping lower
• ASX 200 rises, Pro Medicus (ASX:PME) wins another global contract
• Why the BHP (ASX:BHP) share price is up on AGM news
• Countries are panic buying food and this isn’t reflected in ASX agriculture stocks

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP 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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The Dubber Corp Ltd (ASX: DUB) share price has returned from its trading halt and is tumbling lower on Friday.

In afternoon trade the cloud-based call recording services provider’s shares are down 5.5% to $1.18.

Why was the Dubber share price in a trading halt?

Dubber requested a trading halt on Wednesday so it could launch an institutional placement.

This morning the company revealed that it received firm commitments from institutional, professional, and sophisticated investors to raise $35 million at $1.10 per share. This represents a 12% discount to its last close price.

Dubber will now look to raise a further $6 million via a share purchase plan at the same price. This offer is scheduled to close on Friday 6 November 2020.

Why is Dubber raising funds?

Dubber revealed that the proceeds from its capital raising will be used to accelerate its global growth, support product development, pursue strategic merger and acquisition opportunities, and for general working capital.

The company’s CEO, Steve McGovern, was very pleased with the success of the placement and appears confident that the funds will help accelerate Dubber’s growth.

He commented: “Dubber has a leadership position globally as the unified call recording platform of choice for service and unified communications solutions providers. We will meet accelerating demand globally with the expansion of our sales, marketing and product development efforts – and pursue M&A opportunities that are in the market.”

“Unified Call Recording is crucial to Enterprises meeting compliance requirements, boosting sales and CX performance; and, unlocking the potential in voice data. Dubber is the only solution capable of doing this globally, from within the network, eliminating the needs for complex hardware, software and services,” he added.

Mr McGovern concluded: “We are delighted with the support shown from investors, with bids received well in excess of amounts raised under the Placement.”

More reading

• Why Dubber, New Hope, Pro Medicus, & Rio Tinto shares are dropping lower
• Why the Dubber (ASX:DUB) share price rocketed 16% higher today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The New Hope Corporation Limited (ASX: NHC) share price is falling today, down 2.45% at the time of writing to $1.20. This comes after the company announced a restructure of its corporate office.

What was in the announcement?

New Hope Corporation advised it had offered voluntary redundancies to workers at its corporate office. The coal and oil producer plans to make 75% of its corporate office staff redundant by the end of November 2020. The restructure will see the majority of executive positions removed.

The company will adopt what it refers to as a more ‘streamlined’ management structure. 

New Hope Corporation CEO Reinhold Schmidt said with ongoing uncertainty around approvals for the New Acland coal mine, management has had “to refocus and put the business in the best position to go forward”.

We have had to make some very difficult decisions but, in reality, even if we were granted approvals for stage 3 today, we are in for a tough couple of years as we ramp up again.

About the New Hope Corporation share price

New Hope is a coal and oil producer with assets in Australia. The company has been listed on the ASX since 2003. 

In the year to 30 June 2020, New Hope had revenue of $1.08 billion, down 17% compared to the year to 30 June 2019. Earnings before interest, tax, depreciation and amortisation (EBITDA) were $290 million in FY2020, down 44% from FY19. Earnings per share (EPS) before non regular items were 10 cents.

The New Hope share price is up 17.65% since its 52-week low of $1.02, however, it is down 42.03% since the beginning of the year. The New Hope Corporation share price is down 47.60% since this time last year.

More reading

• Why Dubber, New Hope, Pro Medicus, & Rio Tinto shares are dropping lower
• New Chinese government threat leaves these ASX mining stocks on tenterhooks
• Why you may not need ASX REITs for dividends
• Top brokers name 3 ASX shares to sell next week
• Is the Soul Patts (ASX:SOL) share price a buy?

Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The prospects for many cheap shares continue to be relatively uncertain. The coronavirus pandemic has continued over recent months, and may persist over the short run.

While this may mean that investors experience paper losses in the coming months, buying undervalued shares now could be a shrewd move.

Their low prices, track record of recovery and the presence of major stimulus packages may boost their returns in a post-pandemic world.

Buying cheap shares today

The ongoing threat of a second share market crash means that there are many cheap shares available to buy today. Investor risk aversion has continued to be relatively high of late, with many sectors facing a continued period of weak sales and profit growth.

Buying such companies now may be viewed as a risky move by some investors. And, while there is scope for paper losses in the short run, their long-term prospects appear to be bright. Low share prices mean that a wide margin of safety may be included in their valuation. This may provide greater scope for capital growth, which could catalyse your portfolio in the long run.

Furthermore, many cheap shares are undervalued because of weak investor sentiment towards the wider equity market. Therefore, some high-quality businesses may be trading on unjustly low valuations that do not reflect their future potential. They may offer scope for high capital returns as the economy recovers.

Track record of recovery

Even though cheap shares may deliver disappointing performances in the short run, their long-term prospects appear to be sound. The share market has a strong track record of recovering from even its very worst downturns to post new record highs. Therefore, investors who purchase shares when they are trading at a low ebb can benefit from its turnaround prospects.

For example, indexes such as the FTSE 100 Index (INDEXFTSE: UKX) and S&P 500 Index (INDEXSP: .INX) have experienced numerous bear markets over recent decades. They include the dot com crash, the global financial crisis and the 2020 market crash. They have still been able to produce high single-digit annualised returns that appear to be very achievable over the coming years.

Stimulus packages

Another reason why cheap shares can surge in the next decade is the stimulus packages being implemented in major economies across the world. Policymakers across North America, Europe and many other parts of the world are seeking to support the economy through a variety of measures, including low interest rates and asset purchase programmes.

Such programs have a solid track record of stimulating asset prices, as was evidenced in the decade-long bull market that followed the global financial crisis. Therefore, even if the economic outlook is tough at the present time, buying undervalued shares today could be a means of benefitting from favourable policy action over the long run.

More reading

• Why the New Hope Corporation (ASX:NHC) share price is down
• Why Dubber, New Hope, Pro Medicus, & Rio Tinto shares are dropping lower
• How the US election and COVID-19 vaccine will hit ASX shares
• The Recce (ASX:RCE) share price has surged up today. Here’s why
• Zip (ASX:Z1P) share price slumps 10% this week: is it a buying opportunity? 

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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In afternoon trade the S&P/ASX 200 Index (ASX: XJO) is on course to finish the week with a small decline. At the time of writing the benchmark index is down 0.15% to 6,201.8 points.

Four shares that are falling more than most today are listed below. Here’s why they are dropping lower:

The Dubber Corp Ltd (ASX: DUB) share price is down 5.5% to $1.18. This follows the completion of an institutional placement which raised $35 million at a 12% discount of $1.10 per share. Dubber will now look to raise a further $6 million via a share purchase plan. These funds will be used to meet accelerating demand globally through the expansion of its sales, marketing and product development efforts. It also intends to pursue merger and acquisition opportunities.

The New Hope Corporation Limited (ASX: NHC) share price has fallen 3% to $1.19. This morning the coal miner announced that it has offered voluntary redundancies to workers in its corporate headquarters. The company advised that it will undergo a significant restructure, with up to 75% of the workforce at the corporate office to be made redundant by the end of November. New Hope blamed uncertainty around approvals for its New Acland operation for the redundancies.

The Pro Medicus Limited (ASX: PME) share price is down almost 2.5% to $30.49. This appears to have been driven by profit taking after a strong gain on Thursday. Investors were buying the healthcare technology company’s shares yesterday after it announced a major new contract with Germany’s LMU Klinikum.

The Rio Tinto Limited (ASX: RIO) share price has dropped almost 1% to $95.48. This follows the release of its third quarter update. For the three months ended 30 September, Rio Tinto delivered Pilbara iron ore shipments of 82.1Mt. This was a 5% decline on the second quarter and fell a touch short of expectations.

More reading

• ASX 200 flat: Rio Tinto Q3 update, big four banks higher, GUD impresses
• Rio Tinto (ASX:RIO) share price in focus following Q3 update
• Should you stay invested in an ASX share after a strong run?
• 5 things to watch on the ASX 200 on Friday
• ASX 200 rises, Pro Medicus (ASX:PME) wins another global contract

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. 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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The two big question marks currently for share markets are the United States Election next month and how soon a COVID-19 vaccine will arrive.

The Australian market, like it or not, is heavily influenced by the movements in the US, because it’s a far bigger pond containing companies with global reach.

Helpfully one fund manager has worked out the likely outcomes for ASX shares in each probable scenario.

T. Rowe Price Group Inc (NASDAQ: TROW) Australian equities head, Randal Jenneke, told investors this week that there were three key situations to consider.

First is a split Congress — this is when the presidency and the senate majority are won by different parties. Second is a ‘blue wave’, where the Democrats will sweep to power in both. And the third is the arrival of a breakthrough coronavirus vaccine.

Scenario 1: shared power 

If a split Congress is seen, Jenneke’s bet is on growth shares.

“No one party controls all the arms of government — if that’s the case, while we will see greater stimulus… it’s going to be lower than it would otherwise be,” said Jenneke.

“In that scenario, we think that growth stocks will continue to do well and outperform value stocks.”

Scenario 2: blue wave

If the left-leaning Democrats win power in both executive and the legislature, America will become a very different place.

“Here we see the prospect for much bigger fiscal stimulus and spending,” Jenneke said.

“In that environment we think that [growth] cyclicals and value stocks will do well.”

He explained that while government debt will climb, interest rates would remain low.

Scenario 3: vaccine release

Jenneke thought that the influence of COVID-19 would “fade over time”, though a safe vaccine, effective treatments or because society “learns to live with it”.

“As the impact fades, we do think that growth is going to improve.”

But the importance of a vaccine — or, at the very least, an effective treatment — can’t be understated. 

Jenneke took the assumptions in the Australian federal budget as an example.

“If you look at the base case for the forecast for FY2021, the budget numbers forecast a GDP growth [of] 4.75%. And that’s with an assumption that we have a vaccine by the end of 2021 and it’s widely deployed across the Australian economy.”

So if a vaccine came a bit earlier than that assumption, it would help growth. If it was later than the government’s guess, then it would harm the nation’s position.

“This goes to show the importance of what a vaccine means.” 

How T Rowe Price has balanced ASX shares 

Because both scenarios 1 and 2 favour growth stocks, T Rowe Price showed how it has weighted growth subcategories among ASX shares.

Jenneke said that it was currently 38% invested in cyclical growth stocks, 33% in defensive growth, 16% in recovery growth and 9% in extreme growth.

“We think it’s really important to hedge your bets a little bit and make sure you’re positioned in as many of those 3 key scenarios as you possibly can.”

Growth stocks have outperformed value stocks simply because of fundamentals, according to Jenneke.

“A lot of people would highlight the change in multiples caused by low rates, and I’d say, yes, there’s been a benefit from that,” he said.

“But the fundamentals around sales growth, earnings growth and cash flow growth — this is the key reason.”

Despite the bull run before and after the COVID-19 crash, Jenneke said the share market is still an excellent bet compared to other investment options.

“To us, equities still look quite attractive. Valuations don’t look stretched. And there’s still a good risk premium in the equity market.”

More reading

• Why Dubber, New Hope, Pro Medicus, & Rio Tinto shares are dropping lower
• The Recce (ASX:RCE) share price has surged up today. Here’s why
• Zip (ASX:Z1P) share price slumps 10% this week: is it a buying opportunity? 
• 3 outstanding ASX shares to buy with $10,000 right now
• The Medibank (ASX:MPL) share price rockets on broker upgrade

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Recce Pharmaceuticals Ltd (ASX: RCE) share price is rocketing higher today following an update on its Recce 327 product.

In early trade, the medical company’s share price hit an intra-day high of $1.19, but has since retreated to $1.12, up 6%.

What does Recce do?

Recce is involved in the advancement of synthetic antibodies designed to address the global health challenge of antibiotic resistance superbugs. The pharmaceutical company’s flagship drug, Recce 327, is being developed to treat blood infections and sepsis.

The group operates solely in  research and development, and is located in both Australia and the United States.

Start of trials

Recce announced it had received an ethics approval to start clinical trials of its broad-spectrum antibiotic Recce 327 drug. The Human Research Ethics Committee (HREC) assessed the anti-viral formula and deemed it met ethical studies and guidelines.

Start of the phase I/II study will assess the efficacy of Recce 327 against infectious bacteria on burn wounds. The trial will involve up to 30 patients before expanding to a comparative effectiveness study based on the data. Over the 14 days, 10 patients will receive Recce 327 daily while a further 20 patients will receive treatment three times per week.

Once the trial period is completed, investigators will review the results and decide upon the best standards of care for future programs. In addition, burn wound specialists will oversee the delivery of Recce 327 via a spray-on-formulation.

The Health Department’s South Metropolitan Health Service in Western Australia is expected to sponsor the trial. The Fiona Stanley Hospital (Burns Unit) in Perth is the nominated location.

Recce chair Dr John Prendergast  said:

Human ethics approval is another milestone for Recce and the clinicians seeking effective treatments to combat the scourge of antibiotic resistant bacteria. Achieving this goal speaks to the dedication of our clinical and research team as we continue to build on our clinical and commercial potential.

Should you invest?

I think that Recce has a promising future. If the company can deliver on its Recce 327 and Recce 529 compounds, then its share price could reach higher. It was only last month, the company updated the market on its fight against COVID-19.

At a market capitalisation of $194 million, the Recce share price has jumped 322% since this time last year. However, it is sitting almost 40% below its all-time high achieved in mid-September.

More reading

• Why the Recce Pharmaceuticals (ASX:RCE) share price is jumping 10% higher
• Why Corp Travel Management, EOS, Evolution, & Recce shares are charging higher
• Why the Recce Pharmaceuticals (ASX:RCE) share price crashed 15% lower today
• Why Kathmandu, New Hope, Recce, & Ramelius shares are dropping lower today
• These 4 ASX shares have grown more than 100% this year

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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Zip Co Ltd (ASX: Z1P) shares have had a rough week following the company’s announcement of its much anticipated Q1 FY21 trading update. With the Zip share price falling more than 10% this week (at the time of writing), could it be a bargain ASX 200 tech share buy? 

What caused the Zip share price to sell off? 

More broadly speaking, buy now, pay later (BNPL) shares bottomed in late September followed by a strong rally into mid October. BNPL shares such as Afterpay Ltd (ASX: APT), Openpay Group Ltd (ASX: OPY), Sezzle Inc (ASX: SZL), Splitit Ltd (ASX: SPT) and Laybuy Holdings Ltd (ASX: LBY) all rallied between 10% to 25% during this period. 

In the case of the Zip share price, it rallied some 30% from September through to its October peak. However, without the backing of any announcements or material news, this suggests that much of the anticipated announcement had already been priced in. Unless the Q1 FY21 trading update contained some extraordinary updates, I believe the market treated it as news to sell into. 

Q1 FY21 trading update 

At face value, the Q1 FY21 trading update was well rounded and highlighted Zip’s strong growth in the United States, maturity in Australia and New Zealand, and expansion of the company’s strategic partnerships and products. 

The US business is hitting its stride following the completed acquisition of US BNPL company, QuadPay. Its US revenue soared 409% on Q1 FY20 or 50% on Q4 FY20 to $23.4 million, representing a third of the company’s revenue. Momentum continues to grow for the QuadPay app with more than 7,000 customers joining on average each day and increasing web traffic, with unique visitors growing 42% QoQ. 

The only reason I can see why the Q1 FY21 update may have failed to live up to expectations was the fact that there was no ‘new’ business updates. The QuadPay acquisition and anticipated strong growth figures in the US have been known for months. The ANZ market is arguably reaching its maturity and growth figures will no longer be triple digits. Zip’s new partnerships and products such as its strategic partnership with Visa Inc (NYSE: V) and its SME loans via Pocketbook and the Australian arm of eBay Inc (NASDAQ: EBAY) are not yet significant revenue contributors.

Foolish takeaway

Notwithstanding the dip in the Zip share price, I believe the company delivered a strong Q1 FY21 business update. It is good to see the US business growing strongly despite the fears regarding PayPal Holdings Inc (NASDAQ: PYPL) entering the BNPL space. I believe more time is needed for the business to explore new market opportunities. Personally, I’ll be watching the Zip share price closely at its current level as it could represent a good entry point.

More reading

• Top brokers name 3 ASX shares to sell today
• Why IDP Education, WiseTech, Zip, & Zoono shares are tumbling lower today
• ASX 200 finishes lower, Afterpay (ASX:APT) shares rise
• Why Brickworks, Flight Centre, Whitehaven, & Zip shares are dropping lower
• Zip (ASX:Z1P) share price lower despite explosive Q1 growth

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings and Visa. 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 eBay and Sezzle Inc and recommends the following options: long January 2021 $18 calls on eBay, short January 2021 $37 calls on eBay, and long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings and Sezzle Inc. 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.

The post Zip (ASX:Z1P) share price slumps 10% this week: is it a buying opportunity?  appeared first on Motley Fool Australia.

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