Why has the Zip Co share price run out of steam?

Posted: 22 June 2021 1:25 pm

Shares in BNPL provider Zip Co have jumped over 16% in the last month.

Buy-now-pay-later operator Zip Co Ltd (ASX: Z1P) is among the top losers on the ASX amid an otherwise strong market on Tuesday. Zip shares, which had raced ahead in the past few weeks, were trading 2.8% lower at $7.98 at the time of writing.

Why is the Zip stock price falling?

Shares in the buy-now-pay-later provider are likely seeing profit booking by investors after the recent run up. By close on Monday, the Zip Co stock had climbed an astonishing 16.6% over the past month, on the back of returning interest in growth stocks.

The Australian company has delivered strong sales growth in recent years, thanks to the increasing popularity of the BNPL payment method as well its international expansion.

It acquired New York-based QuadPay for $403 million last year, and last month announced it would raise stakes to take control of UAE-based Spotii Holdings and Europe-focused Twisto Payments, giving it a stronger foothold in the Europe and Middle East markets.

Still, the company remains one of the most shorted stocks in the ASX, with short interest of 7.1% last week. Typically, these stocks are perceived as risky, and investors choose to book profits, especially after a sharp run up, such as the one seen in Zip Co.

Interest rates overhang

That may well be because the broader BNPL industry is facing the brunt of investor concerns about the likely impact of rising interest rates, and rising bond yields are undercutting the enthusiasm for growth stocks.

Statements from the US Federal Reserve last week, signalling a shift to a more hawkish stance, have further unsettled BNPL investors. Federal Reserve officials are now expected to raise interest rates by 0.5% in 2023, as the US economy recovers faster than expected.

That could have a more direct impact on prospects for Zip Co’s QuadPay business in the US, which has given it a strong foothold in the world’s biggest retail market and which has seen a surge in transactions amid the COVID-19 lockdowns.

This was reflected on the ASX on Tuesday, where Zip Co peers Afterpay (ASX: APT) and Sezzle (ASX: SZL) were both trading higher.

Considering investing in Zip Co shares?

If you are keen to buy Zip shares, you should consider investing through an online share trading platform.

Keep in mind that not all platforms offer the same list of stocks. Some trading platforms offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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