I firmly believe that for BNPL companies, you MUST modify the generic fundamental analysis principles of Profitability, Low Debt, P/E, EPS, etc, in order to receive a more accurate company valuation.
You have to view BNPL companies as Short term lenders + Payment companies, so your metrics for valuations would look more into Tranaction margin & Net Credit Loss Rate to loan book value, similarly to other lenders / banks.
These metrics listed above help you closely compare to Zip Co's competitors.
Zips tranaction margin is ~2.5% which sits in the middle of its competitors, who are much larger in Enterprise Value (punching above its weight). Its debt to equity was mentioned in the data at ~340%, sitting higher than the competition, but this is mainly due to recent expansion into the US market.
Net Credit Loss Rate is average, being around ~1.5% but I believe for Zip's size in comparison to its competitors, that is a healthy position for them to be in.
At Zip Co's current price of $1.605, it presents very attractive upside value to risk due to the valuation metrics listed above. By giving Zip Co a FAIR approx. price to sales ratio of 3x, we receive a price of $2.55, representing a ~37% discount. Zip being seen as a lending company may mean economic headwinds regarding interest rates slow volume into the stock.
With further valuation reports being released next month, if we see the following targets be hit, Zip could easily reach my $2.55 valuation. I would look for Debt reduction, a higher Transaction Margin / NPAT and a sustained Credit Loss Rate of ~1.5-2%.
Zip is unique in the sense that it is closer to being a "credit card" company than a typical BNPL as it's not merchant based like Afterpay, nor a "Lending" company like Klarna. This could be viewed as a negative to some, however I believe it gives the company moat as it's main product is somewhat different from its "competitors".
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