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Mirvac Group (ASX: MGR) has been hit hard in 2020. Investors have sold out and pushed the Aussie real estate investment trust (REIT) share price 34.5% lower. But despite its struggles this year, I think there’s a lot to like about the Mirvac share price. Here’s why Mirvac could be a good pick if you’re after real estate exposure in 2020.

Why the Mirvac share price could be in the buy zone

Let’s start with the full-year result which was tough for investors to swallow.

Mirvac reported a 17% slump in revenue to $2,312 million and a 45% drop in net profit after tax. 

The Aussie REIT has four main business units across Office, Industrial, Retail and Residential. I think that diversification could be a good thing in 2020.

Office real estate is quite uncertain right now as the coronavirus pandemic forces a rethink of commuting arrangements. Aussie retailers are under pressure while residential and industrial markets are holding up for now.

That could make Mirvac a better buy than some concentrated REITs. For instance, Scentre Group (ASX: SCG) and Vicinity Centres (ASX: VCX) are exclusively retail REITs.

That means Mirvac’s Industrial and Residential portfolios could outperform. There’s a strong pipeline in the residential business which could yield some strong results given the record low interest rate environment.

Occupancy rates in its Office and Retail portfolios were sitting at 98.3% with Residential operating earnings climbing 12% to $225 million. 

The Mirvac share price has been under pressure in 2020 but I think the various business levers could help stabilise earnings in FY21.

It’s far from a safe buy in my opinion but I think the strong yields on offer from the REIT could be worth it.

The Mirvac share price is currently yielding 4.35% per annum which is pretty handy in the current environment. 

What about other ASX REITs?

The Aussie retail REITs have been hit hard in 2020 with both Scentre and Vicinity slumping lower.

If today’s Mirvac share price isn’t in your buy zone, I think National Storage REIT (ASX: NSR) could be worth a look.

The National Storage share price is up 2.4% this year and could offer good diversification benefits.

National Storage generates strong earnings from its self-storage units which could benefit from strong housing activity. That means National Storage is worth keeping an eye on for strong yield and capital stability.

More reading

• 2 top ASX results you might have missed on Wednesday
• 2 quality ASX dividend shares to buy
• 2 ASX dividend shares for income investors to buy next week
• Mirvac share price on watch as profit slumps 45%
• Why I would buy CBA and this ASX dividend share for income

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. 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 morning trade the National Australia Bank Ltd (ASX: NAB) share price is pushing higher after announcing a deal with IOOF Holdings Limited (ASX: IFL).

At the time of writing the NAB share price is up almost 1% to $18.06.

What did NAB announce?

This morning the banking giant announced that it has entered into a sale and purchase agreement to sell 100% of its MLC Wealth business to IOOF for a purchase price of $1,440 million.

The company advised that this agreement follows its strategic decision to pursue an exit of MLC. It is also in line with its strategy to simplify and focus on its core banking business, while creating a stronger future for MLC.

NAB’s CEO, Ross McEwan, explained: “We have a clear plan and we are getting on with it. The sale of MLC will enable NAB to prioritise investment and focus on executing our refreshed strategy of delivering simpler, more streamlined products and processes for our customers and colleagues.”

“NAB has taken a disciplined approach over the past two years to transform the business and prepare it for exit. Significant work has been done by MLC CEO Geoff Lloyd and his executive team to modernise and strengthen the MLC business and remediate customers,” he added.

The chief executive believes the sale of the business is the best outcome for shareholders and MLC stakeholders.

He added: “Consolidation has the potential to deliver significant benefits for clients and members, including scale and reducing costs, complexity and risks. The combined business is expected to be a highly competitive, advice-led retail wealth manager.”

What are the terms of the deal?

The purchase price of $1,440 million represents a multiple of 17.3x MLC’s cash earnings of approximately $83 million.

It comprises $1,240 million in cash proceeds from IOOF and $200 million in the form of a 5-year structured subordinated note in IOOF. The latter will provide NAB with the opportunity to participate in the potential value created through the combination of MLC and IOOF over the medium term.

In addition, NAB is expected to receive approximately $220 million of surplus cash from MLC in the form of a pre-completion dividend.

What impact will this have on NAB’s balance sheet?

On a pro forma 30 June 2020 basis, NAB core equity tier 1 (CET1) capital is expected to increase by approximately 30 basis points. This will result in a pro forma CET1 ratio of approximately 11.9%.

Management also expects the transaction to deliver a modest uplift to its return on equity.

Though, the transaction is estimated to result in a post-tax loss on sale of approximately $400 million. This includes post-tax separation and transaction costs for NAB of approximately $200 million.

Completion of the transaction is subject to certain conditions, including regulatory approvals from APRA and ACCC. Subject to the timing of these regulatory approvals, completion is expected to occur before the middle of calendar year 2021.

More reading

• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• 5 things to watch on the ASX 200 on Monday
• Unlikely ASX stock winners from the change in the Fed’s inflation policy
• 5 things to watch on the ASX 200 next week
• Attention all value investors – here’s one key ratio to help you value a company

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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In morning trade the Sealink Travel Group Ltd (ASX: SLK) share price is storming higher following its full year results release.

At the time of writing the tourism and transport company’s shares are up 6% to $4.71.

How did SeaLink perform in FY 2020?

It certainly was an eventful year for SeaLink in FY 2020 as it battled the tough trading conditions caused by the pandemic and integrated its transformational $635 million acquisition of Transit Systems Group. The latter completed in mid-January, contributing approximately five and a half months of trading to this result.

For the 12 months ended 30 June 2020, SeaLink delivered a 152.8% increase in total revenue to $646.5 million. This comprises Australian Bus revenue of $277.1 million, International Bus revenue of $132.6 million, and Marine & Tourism revenue of $213.9 million.

On the bottom line, the company posted underlying net profit after tax and before amortisation of $37.2 million, up 47.2% on the prior year. Though, on a statutory basis, the company declared a loss after tax of $13.5 million. This was driven mostly by non-cash and one-off items. These include $12.4 million of COVID-19 related impacts.

Despite this, the company has declared a fully franked final dividend of 4.5 cents per share. This brings its full year dividend to 11 cents per share.

Outlook.

SeaLink’s CEO, Clint Feuerherdt, is positive on the company’s outlook.

He commented: “The successful acquisition and integration of the Transit System Group during the 2020 financial year has transformed SeaLink into an integrated, resilient, international multi-modal transport business.”

“Approximately 87% of SeaLink’s revenue is currently contracted to mostly large government clients and we are proud to have renewed and expanded many of these operating contracts, a testament to our focus on providing safe, efficient, convenient and sustainable travel,” he added.

The chief executive concluded: “The outlook for the Group continues to be positive. A strong pipeline of bus contracting opportunities is being pursued, our tourism assets are unique and attractive to domestic travellers and our balance sheet strength positions us to take advantage of opportunities that are coming to market.”

More reading

• Is the Domino’s share price too expensive?
• Electro Optic share price drops after half-year results
• Why I’d buy dirt-cheap stocks instead of taking advantage of the surging gold price
• Is the Mirvac share price the best real estate buy right now?
• NAB share price pushes higher on $1.44 billion MLC Wealth sales to IOOF

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 Splitit Ltd (ASX: SPT) share price is on the move following the release of its half year results.

At the time of writing, the payments company’s shares are down 2% to $1.79.

How did Splitit perform in the first half?

As with almost all buy now later providers such as Afterpay Ltd (ASX: APT) and Zip Co Limited (ASX: Z1P), Splitit was a positive performer over the last six months.

For the half ending 30 June 2020, Splitit recorded a 133% jump in merchant sales volume (MSV) to US$89.1 million. This led to the company reporting a 244% increase in gross revenue to US$3.1 million for the six months.

Key drivers of its growth were increases in customer numbers and merchants. At the end of the half, the company had 149,000 active shoppers on its platform, up 28% on the prior corresponding period. Growing at a stronger rate, albeit from a very low base, were its active merchants. They are now 519, up 92% on the prior corresponding period. Since the end of the period, Splitit has signed up a further 116 new merchants.

Also improving was its repeat shoppers metric. Approximately 11.2% of shoppers that made a purchase in the first half have previously made a successful purchase. While this trails its peers materially, with an average order value of US$845, up 59% from US$531, these purchases are likely to be much less frequent than what Afterpay and co experience.

What else happened in the half?

During the half the company signed partnerships with Stripe, Visa, and Mastercard to accelerate innovation and merchant acceptance.

Management advised that these partnerships are progressing well.

In addition, Splitit integrated with B2B and B2C payment platform Blue Snap, and further enhanced its integration with open-source e-commerce platform, Magento.

Outlook.

Management advised that its growth is expected to continue in the second half and beyond.

It commented: “Splitit has a compelling consumer and merchant offering that is resonating strongly in the current environment. This has seen it deliver record MSV and Gross Revenue results, despite challenging global conditions.”

“This growth is expected to continue in H2 FY20 and beyond as its new partnerships with leading global organisations, Stripe, Visa and Mastercard, help to drive innovation in the buy now pay later space, improve the customer experience, and to accelerate the global acceptance of Splitit with new merchants. This growth will be supported by the Company’s enhanced leadership team and new brand identity,” it concluded.

More reading

• Why Splitit and these ASX shares just hit new highs
• Are BNPL shares like Afterpay officially recession proof?
• Should you invest in Splitit shares?
• MoneyMe share price surges, but is it sustainable?
• Have $2,000 to invest? Try these 2 ASX growth shares today

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 owns shares of AFTERPAY T 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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High paying ASX dividend shares can be difficult to find. However, if you look hard enough, there are some great deals on the ASX. The beauty of a dividend, once declared, is that it’s almost 100% certain to be paid. I believe all the companies discussed below represent solid investments and, furthermore, their dividend payments are higher than average.

It’s important to note when buying dividend shares that the purchase must be made prior to the ex-dividend date in order to qualify for the next payment. After this date, the buyer is not eligible to receive the next dividend. Also, bear in mind the practice of dividend harvesting. This is a tactic in which investors will buy shares to get the high yield payment, and then sell immediately as the share goes ex-dividend.

Nonetheless, I am confident these shares will continue to rise over the near term. So if you are willing to hold them for 3 – 6 months, you should also see a small level of share price growth.

One share to buy today for a 6.67% yield

Ashley Services Group Ltd (ASX: ASH) is a human resources consultancy offering training, recruitment and labour hire services. It has multiple brands operating in each vertical, and is also a registered training organisation (RTO). The company published its FY20 annual report on Friday, and correspondingly its share price jumped by 6.5%.

Over the past 5 days, the Ashley share price has risen by 10.9%. Nonetheless, the company is still selling at a price-to-earnings (P/E) ratio of 9.48. From its current report, and prior history, I believe this is a good small cap to own. It continues to increase sales and to build its footprint. In addition, the company has no borrowings and plenty of cash on hand. 

Based on Friday’s closing price, this ASX dividend share will yield 6.75%. However, it goes ex-dividend on 1 September, or tomorrow. So if you are going to get this dividend, there is little time to waste.

One ASX dividend yield of 12.5%

This ASX dividend share has only recently come onto my radar. Base Resources Limited (ASX: BSE) is a successful mineral sands company operating in Kenya and Madagascar. It has found an ore body that has a very low strip ratio, that is, a low waste-to-product ratio. Moreover, in the past month, the Base Resources share price has risen by 29.1%. 

The company’s net profit after taxes (NPAT) for FY20 was $39.6 million. This was a slight reduction on 2019 due to reducing ore grades where it is producing. Nevertheless, the company intends to produce 700 kilo tonnes in FY21, an increase of 50.2%. 

This year will be the company’s maiden dividend payment. Based on Friday’s closing price, this dividend will yield 12.5%, which is a large payment by any standards. From my investigations, Base Resources appears to be a company that delivers on its promises. As such, I think it’s a good investment regardless of the payment. 

The share goes ex-dividend on 18 September. 

A beautiful company to buy before Wednesday!

One look into the financials, website or buildings of Sunland Group Limited (ASX: SDG) and you will see a company obsessed with beauty. The entire company and its products reflect minimalism, with sleek lines, soft angles and the reinforcement of architecture as art. This small cap is valued at $194 million and is a residential property developer with a difference. I have to admit, I find the company’s aesthetics highly appealing.

However, Sunland has not had a great year due to coronavirus. It has seen statutory net profits after tax reduce to $2.4 million due to one-off write downs. Nevertheless, gearing is still low at 33%, and the company is set to see a great improvement in FY21. At present, it has a net tangible asset value of $2.56 per share, yet is selling at $1.42. 

If you purchase this ASX dividend share before Wednesday 2 September, then based on Friday’s closing price, it will pay a yield of 7.04%. Aside from its dividend, I also believe Sunland Group will be a good company to own over the medium term in general. 

More reading

• 3 under the radar ASX growth shares to buy today
• 3 ASX dividend shares to buy before it’s too late

Motley Fool contributor Daryl Mather 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 Cooper Energy Ltd. (ASX: COE) share price is one to watch after the oil and gas producer reported a 150% slump in underlying net profit after tax (NPAT) this morning.

Why is the Cooper Energy share price on watch?

Cooper Energy reported a full-year underlying net loss after tax of $6.6 million for the year ended 30 June 2020 (FY20).

That’s despite production levels climbing 19% higher to 1.56 million barrels of oil equivalent (MMboe) with sales revenue edging 3% higher to $78.1 million.

Underlying earnings before interest, tax, depreciation, amortisation and exploration expense (EBITDAX) fell 14% to $29.6 million. Cooper Energy reported a 611% drop in statutory NPAT, resulting in an $86.0 million loss.

That included a $107.5 million impairment charge announced on 25 August as part of $79.4 million in net significant items after tax.

The Cooper Energy share price is one to watch in early trade following the results announcement. Despite soft earnings, the oil and gas producer reported a 134% surge in cash flow from operations to $48.1 million.

Net debt also increased by 81% to $97.8 million with cash holdings down 20% to $131.6 million.

The coronavirus pandemic sparked an oil price war in March which has put operating margins under pressure. However, Cooper Energy’s gas strong gas revenue helped to offset the $8.7 million decrease in oil revenue for the year.

Prior to this morning’s open, the Cooper Energy share price was down 45.1% for the year. Shares in the oil and gas company closed at $0.34 per share on Friday, having set a new 52-week low of $0.33 in Thursday’s trade.

Outlook

Management is forecasting excess supply in the liquid natural gas (LNG) market for 2020-2021 which will put downward pressure on prices.

However, in the medium term (2022-2023), Cooper Energy sees supply tightening as output declines.

The Cooper Energy share price will be one to watch this morning after also providing guidance for FY21.

The Aussie energy group is forecasting significant exploration and development cuts across its portfolio. Otway capital expenditure is expected to fall from $44.3 million in FY20 to 33-38 million this financial year.

Overall capital expenditure is expected to fall from $76.7 million to $50-58 million in FY21.

More reading

• Last week’s worst performing ASX shares
• ASX 200 Weekly Wrap: Blue chips, earnings drag ASX lower
• These were the worst performing ASX 200 shares last week
• The next battle facing these ASX stocks will come from within

Motley Fool contributor Ken Hall 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 Temple & Webster Group Ltd (ASX: TPW) share price is on watch today after the online retailer delivered record full year results. Consumers spending more time at home have increased spending on homewares while the coronavirus pandemic has prompted a shift to online shopping. These twin trends have benefitted Temple & Webster, driving sales to record levels.  

What does Temple & Webster do?

Temple & Webster is an online-only furniture and homewares retailer. Australia’s largest e-commerce company in the furniture and homewares space, Temple & Webster sells more than 180,000 products from hundreds of suppliers. The company operates a drop-shipping model where products are sent directly to customers by suppliers. This reduces the need to hold inventory and complements a private label range sourced directly by Temple & Webster. 

How did Temple & Webster perform in FY20? 

Temple & Webster saw sales and revenue accelerate over the course of FY20. Full year revenue was $176.3 million, up 74% year on year. Second half revenue was up 96% on the prior corresponding period while Q4 revenue was up 130%. Active customers grew 77% year on year to reach 480,000 and the company had its first $2 million day in June. Full year EBITDA was $8.5 million, up from $1.5 million in FY19. This gave net profit after tax of $13.9 million, which included an income tax benefit of $5.9 million. 

CEO Mark Coulter said:

Our strategy of being a category specialist, with a clear customer offering built around the biggest and best range of furniture and homewares in the country, combined with the most inspirational content and services and a great delivery experience and customer service, is working. The advantages of being the online market leader are apparent as we continue to grow our market share. 

What is the outlook for Temple & Webster? 

FY21 has started strongly for Temple & Webster, which reached the 500,000 customer milestone in July. Revenue grew 161% year on year to 27 August, with trade ~160% up in both July and August. EBITDA for July and August is estimated to be ~$6 million. The mobile app has been launched in the app store and the company’s second national television campaign will start at the end of Q1. The company had cash of $81 million and no debt as at 27 August, thanks to a recent $40 million placement. This leaves it well funded to pursue its growth objectives. 

The Temple & Webster share price was at $8.21 in close of trade on Friday.

More reading

• 3 ASX retail shares thriving in COVID-19 economic conditions
• 4 ASX shares to profit from booming ecommerce
• Are ASX retail shares buys right now?
• What to look for in the Vicinity Centres FY20 report
• Here’s where Australians are spending – despite the recession

Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group 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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While the rest of us have been watching earnings season reports, several growth shares have been blazing a trail on the ASX.

Every percentage point of growth now, means a lower return over the medium to long-term. For example, I bought Sezzle Inc (ASX: SZL) at $2.83, today I am up by ~300%. Had I waited even two to three weeks, my return today would be far less. Here’s my pick of 3 ASX growth shares to buy before they rise any further. 

Brainchip Holdings Ltd (ASX: BRN)

BrainChip’s share price has risen by 85.29% in the past month. The artificial intelligence company has had two very major announcements in the past 6 months. First, was the completion of wafer construction for the company’s Akida neuromorphic processor. This is a first-of-its-kind neural technology designed to mimic the processes of the brain and nervous system. Second, was the announcement of the company’s first proof of concept partnership to apply it into the gaming and consumer products sectors.

The company already has a range of commercial products generating revenue. Furthermore, this partnership will be exploring Smart Transportation and Smart City applications. This includes Advanced Driver Assistance Systems (ADAS) and Autonomous Vehicles (AV). We should expect to hear more proof of concept partnerships from BrainChip very soon.

I think this is a great ASX growth share to buy is because I earnestly believe this is a turning point in artificial intelligence.

Jumbo Interactive Ltd (ASX: JIN)

Jumbo Interactive saw its share price rocket up by 21.85% in the past month. The company sells lottery tickets under license from Tabcorp Holdings Limited (ASX: TAH). It is already an established force, and recently extended a distribution deal with Tabcorp 2022 to 2030. Moreover, it is already in negotiations with Lotterywest to sell lottery tickets on its behalf, and recently acquired the Gatherwell UK company. The latter is the UK’s largest external lottery manager for schools and local authorities. 

Lastly, the company has been targeting charity sponsored lotteries. This is a $26 billion industry globally with only 10% of sales online. During the lockdown most countries saw falls in lottery ticket sale, while Australia continued to do well. This is because of the Jumbo online sales channel.

Jumbo is a great share to buy in my view, because it is already undervalued, has a massive addressable market, and is pioneering a one-top platform for all lotteries.

Base Resources Limited (ASX: BSE)

The Base Resources share price has risen by 29.1% over the past month. This overlooked pure-play mineral sands miner operates in Kenya and Madagascar. I think it is a great resources share to buy in a sector where prices are massively inflated.

In its FY20 annual report the company made earnings before interest, taxes, depreciation and amortisation (EBITDA) of $108.7 million. This translated into a net profit after taxes (NPAT) of $39.6 million. However, this was largely due to depreciation and amortisation of $57.2 million. It pays to keep in mind that this is an accounting transaction, and the cash does not leave the company.

Overall, revenues, EBITDA and NPAT were slightly down due to lower ore grades. The company is planning to increase production in FY21, and is moving its Madagascar project closer to operation. Moreover, the company has just announced its maiden dividend payment. On Friday’s closing price this will deliver a yield of 12.5%. The Base resources share price is trading at a price to earnings (P/E) ratio of 6.14.

This is an ASX growth share to buy very quickly to secure the 12.5% dividend payment.

More reading

• Sezzle share price on watch after explosive first half growth
• The Sezzle share price is up a sizzling 52% in August and still going strong
• Where to invest in a ‘rip-roaring’ share market rebound
• 3 ASX shares to turn $10,000 into $100,000
• Why APA, Bravura, Jumbo, & Whitehaven shares are sinking lower

Daryl Mather owns shares of Sezzle Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia has recommended Jumbo Interactive Limited 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.

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All share investors like to think they behave rationally.

But humans are not rational beings, and this is reflected in a phenomenon called the Weekend Effect.

This is the tendency for the market to produce higher returns on a Friday than Mondays, which tend to show lower or negative returns.

An analyst named Frank Cross first described the pattern in 1973 in an article in the Financial Analysts Journal.

There are several theories trying to explain why this would happen.

The simplest is that people, in general, are in a better mood on a Friday than a Monday.

“We find that investors’ decision-making process in the stock market is affected by mood swing across weekdays,” RMIT senior lecturer Angel Zhong. 

“Psychological studies show that people are affected by mood when making decisions and tend to respond to stimuli more positively when in a good mood and vice versa.”

A related theory is that public companies “bury” bad news on a Friday afternoon after the markets close, so there is maximum time for investors to forget about it.

‘Speculative’ shares especially love Fridays

According to Zhong, the effect is more obvious for “speculative” shares as they’re more exposed to emotional buyers and sellers.

“The impact of mood on decision making is pronounced when facing uncertainty. In the context of stock markets, making a decision with highly uncertain information corresponds to the valuation of speculative stocks, which are young, growing and highly volatile.”

She said buy-now-pay-later shares like Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) are classic examples in 2020.

“Mood improves gradually from Monday to Friday ranging from the Monday blues to ‘thank god it’s Friday’,” Zhong said.

“That means, investors are more pessimistic on Monday, thus pushing the prices of speculative stocks down. Investors are happier on Friday, hence viewing speculative stocks more favourably.”

Tuesday Blues

Zhong specialises in behavioural biases in retail and institutional share investors.

The Weekend Effect theory originated out of the US, but Zhong has noticed a uniquely Australian phenomenon: the Tuesday Blues.

This is because Australian markets often follow the overnight behaviour of US markets.

US shares experience their Monday depression on Tuesday morning Australian time. Then the ASX follows that lead.

“That means on average, buy-now-pay-later stocks such as Afterpay and Zip tend to underperform on Monday and Tuesday,” said Zhong.

“On Friday, when investors’ mood improves, speculative stocks generate higher returns.”

More reading

• Is the Zip Co share price too expensive to buy?
• Polynovo and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• 3 of the best ASX tech shares to buy in September
• Top brokers name 3 ASX shares to sell next week

Tony Yoo owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T 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 Zip Co Ltd (ASX: Z1P) share price has leapt up by 47.7% in just the past month, giving it a market capitalisation of $3.47 billion. Consequently, many investors are asking if this share is too expensive to buy. Should shrewd investors expect more growth from this company? Or is it a bubble just waiting to burst?

The stratospheric market cap of buy now, pay later (BNPL) stablemate Afterpay Ltd (ASX: APT) also complicates things. Afterpay has a current valuation of $24.86 billion. A value that bears no resemblance to reality, particularly as it doesn’t make a profit. 

High market capitalisation is a new phenomenon for the ASX. However, in the United States, companies like salesforce.com, inc. (NYSE: CRM) have seen many low earnings per share (EPS) results, including 5 negative results since 2010. Yet it has a market cap of US$244.26 billion. To illustrate further, Salesforce generates approximately a third of the revenues of CSL Limited (ASX: CSL), yet has almost double the market cap.

Why so much interest in the Zip Co share price?

Even though they are not the first in the industry, Zip Co and Afterpay have become the two binary stars of this emerging sector. In addition, the rise of the BNPL sector corresponds with a reduction in credit card accounts. For example, the number of Australian credit card accounts peaked at 16,761,187 in April of 2017. By 29 June 2020, it had fallen to 14,088,998, a 16% reduction. Something the Zip Co annual report informs us is part of a global trend.

Moreover, the BNPL sector has arguably contributed to many companies being able to survive the coronavirus lockdowns. By allowing people to spend beyond their immediate means with no additional cost, it has helped merchants across the nation to maintain and increase sales. 

Having kicked off a booming industry sector in Australia, both companies are now forcing their way into the gigantic markets of the US and Europe. Zip Co presently has an active presence in Australia and New Zealand, the United Kingdom, the US and South Africa. The company’s share price caught the market’s attention after announcing it was buying Quadpay, a US BNPL company. In FY20, Zip Co achieved some impressive results including reaching more than 2.1 million customers and 24,500 partners, record full-year revenue of $161.0 million, and a record transaction volume of $2.1 billion. 

What’s more, the company has secured many lucrative partnerships. These include Amazon.com, Inc. (NASDAQ: AMZN) and deals with Cotton On, Bunnings, and PetBarn. Moreover, the Zip Co share price was set ablaze again recently by the deal with eBay Australia. This is where the differences between Zip and its peers start to become clearer. Zip Co bought a company called SpotCap in 2019. This has morphed into Zip Business, a subsidiary operating in Australia, New Zealand, the UK, the Netherlands, and Spain. Zip Business will provide cashflow finance to small and medium enterprises on eBay, as well as invoice financing and lines of credit.

Foolish takeaway

Zip Co has been one of the primary pioneers of the BNPL sector in Australia. Moreover, global sector domination is clearly in its sights. Personally, I welcome the differences that Zip Co has built into its business model. Specifically, flexible payment timelines instead of four payments, stricter credit assessments and bringing its expertise to the business sector. A mark of the company’s discipline is that bad debts, in the age of coronavirus, are running at only 2.44%.

I think Zip Co is slowly building an alternative finance company of the near future, something we have not seen at this scale before. Accordingly, I believe Zip Co shares are a great investment at the current price. Moreover, I think Australian investors are going to have to start getting used to the high valuations of our global ASX leaders.

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• Why Appen, Link, LiveTiles, & Zip shares are dropping lower

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daryl Mather 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 Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends eBay and recommends the following options: long January 2021 $18 calls on eBay, short January 2021 $37 calls on eBay, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon. 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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