Zip Co partnership with Rally House puts US sports fans in focus
Zip Co (ASX:ZIP) has announced a partnership with specialty sports retailer Rally House, adding its installment payment options across more than 300 US locations and online, and putting discretionary fan spending under closer investor scrutiny.
See our latest analysis for Zip Co.
Against this Rally House agreement, Zip Co’s recent share price performance has been volatile, with a 30.4% 1 month share price return and a very large 3 year total shareholder return contrasting with a 6.6% decline year to date. This suggests momentum has been rebuilding over recent months.
If this kind of consumer driven story has your attention, it could be a good moment to widen your search and check out the 5 top founder-led companies
For Zip Co, a 30.4% move in a month and a decline year to date raises a sharper question: are investors now reacting to improving fundamentals like positive net income, or simply rotating back into buy now pay later stocks?
Most Popular Narrative: 22.7% Overvalued
Compared with Zip Co's last close at A$3.13, the narrative fair value of A$2.55 points to a higher market price than this narrative implies, which makes the underlying assumptions worth a closer look.
You have to view BNPL companies as short term lenders and payment companies, so your metrics for valuations would look more into transaction margin and net credit loss rate to loan book value, similarly to other lenders or banks.
These metrics listed above help you closely compare to Zip Co's competitors.
Want to see how this lens on Zip Co turns into a higher fair value than traditional ratios suggest? The narrative leans heavily on specific margin assumptions, loss rates and a future profit multiple that is usually associated with larger lenders. Curious which of those inputs does the heavy lifting in the A$2.55 figure, and how that compares to other BNPL stocks?
Result: Fair Value of A$2.55 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Zip Co's heavy debt load and exposure to credit losses remain key pressure points that could quickly undermine this user narrative if conditions change.
Find out about the key risks to this Zip Co narrative.
Next Steps
With mixed sentiment around Zip Co's valuation and risk profile, it makes sense to move quickly, review the underlying data and shape your own view. To weigh the concerns against the potential upside in one place, start with the 2 key rewards and 1 important warning sign.
Looking for more investment ideas beyond Zip Co?
If Zip Co has sharpened your focus on where to put fresh capital to work, this is a strong moment to cast the net wider using targeted stock lists.
- Spot potential turnaround stories early by checking out 59 elite penny stocks with strong financials that pair lower share prices with stronger underlying financials.
- Zero in on quality at a reasonable price by using the 10 high quality undervalued stocks to see companies that combine solid cash flows and balance sheets with discounted valuations.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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