Down 15% in a week, should you buy the dip on Zip shares?

After five consecutive trading days of losses, Zip Co Ltd (ASX: ZIP) shares are back in the green today.

Shares in the S&P/ASX 200 Index (ASX: XJO) buy now, pay later (BNPL) stock closed yesterday trading for $2.91. In afternoon trade on Thursday, shares are changing hands for $2.96 apiece, up 1.7%.

That sees Zip shares down 14.2% since last Wednesday's closing price of $3.45.

So, is this an opportune time to buy the dip or could the stock have further to fall?

Are Zip shares now a good buy?

As you're likely aware, and as you can see on the below chart, Zip shares have made investors very happy over the past 12 months.

Despite the big retrace this last week, the ASX 200 BNPL stock remains up a sizzling 514% since this time last year. Or enough to turn a $5,000 investment into $30,700.

Now, I don't think the stock is likely to return those kinds of outsized gains over the next 12 months.

But I do think it's well-placed to outperform the benchmark index in 2025.

And it's worth remembering that on 19 February 2021, the stock ended the day trading for $12.35 a share. If it can regain that level over the longer term, that would represent another 320% gain from current levels.

What's been sending the ASX 200 BNPL stock soaring?

Zip shares have broadly benefited from interest rate cuts from the United States Fed and expectations of pending rate cuts from the RBA in 2025.

BNPL stocks have proven to be very susceptible to interest rate moves.

On a company-specific level, ASX 200 investors have been piling into Zip stock amid the company's strong earnings growth, particularly in its US market, where significant growth opportunities remain.

For its first quarter results (Q1 FY 2025), covering the three months to 30 September, Zip reported cash earnings before tax, depreciation and amortisation (EBTDA) of $31.7 million. That was up 233.7% from Q1 FY 2024.

The US business performed exceptionally well, with total transaction value (TTV) up 42.8% year on year to US$1.30 billion. Revenue in the US segment was up 43.9% to US$92.1 million.

"Our US business continued to deliver outstanding growth … driven by ongoing engagement in higher-margin channels such as the App," Zip CEO Cynthia Scott.

As for its Australia and New Zealand market, Zip ANZ saw TTV increase by 3.1% to $871.5 million. ANZ revenue was up 1.5% to $102.5 million.

Zip shares closed up 11.8% on the day the company reported its Q1 results.

The post Down 15% in a week, should you buy the dip on Zip shares? appeared first on The Motley Fool Australia.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Zip Co. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2024