What a rollercoaster it has been for the Zip Co Ltd (ASX: ZIP) share price.
After hitting a record high of $14.53 in February 2021, shares in the embattled buy now, pay later (BNPL) company are down big time.
Just last month, investors shook their heads in disbelief as the Zip share price hit a multi-year low of 43.5 cents. To put that into perspective, it's a 95% loss from the same time last year.
Since then, the company's shares have recovered some ground to finish at 54 cents at yesterday's market close.
Investors appear to have liked the decision not to proceed with the Sezzle acquisition, with the Zip share price up 8% since the announcement on Tuesday.
Zip share price volatility amid market turmoil
Extreme volatility on the back of inflationary movements and rate hikes has put selling pressure on the Zip share price.
For context, the S&P/ASX 200 Financials Index (ASX: XFJ) has shed almost 10% in 2022 following the broader sell-off.
A perfect storm of the above macroenvironmental factors is causing havoc with investors running for the hills.
It appears there are particular concerns about Zip's books and whether there is an upside for the BNPL industry.
In the company's FY22 first-half results, management reported a staggering loss before tax of $214.2 million for the period.
This was despite revenue increasing by 89% to $302.2 million, underpinned by growth in transaction volumes.
However, the spotlight on Zip's bad debts and credit losses seems to be weighing down investor sentiment.
This metric stood at $148.3 million compared to the $29.5 million written off in H1 FY21 – a 402.7% increase.
Cash on hand also dwindled by 19% to $266.8 million.
Whether or not management can turn around the company's fortunes remains to be seen.
Some experts are anticipating that the BNPL sector will fall further this year as tighter regulation looms.
The Australian Government wants to treat BNPL products the same as other credit products.
If adopted, this would likely put a financial strain on Zip's balance sheet as extra lending checks would need to be ticked off.
What do the brokers think?
Despite the current economic climate and possible regulation, one broker believes the Zip share price is undervalued.
According to ANZ Share Investing, Morgans cut its price target by 32% to 86 cents apiece on the BNPL's shares.
On the other hand, Jefferies had a bearish outlook, massively chopping its rating on Zip by 62% to a share price target of 38 cents.
Factoring in the above, while Zip shares have slightly rebounded for now, further falls could be on the way. Especially if the government's plan to close the loophole in the national credit code succeeds.
