Is the Zip (ASX:Z1P) share price a buy in the tech crash?

The Zip Co Ltd (ASX: Z1P) share price has been under the pump in recent days. Are the BNPL leader's shares back in the buy zone?

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The Zip Co Ltd (ASX: Z1P) share price has been smashed in recent days as investors have sold out of ASX tech shares.

Heavy sell-offs in the US markets are continuing and we're seeing similar moves on the ASX. That's not good news for shareholders in some of the hottest tech shares right now.

The Zip share price is down 8.9% since Tuesday morning and could be heading even lower today. So, is now a good time to buy the dip and enter the buy now, pay later (BNPL) share?

rising arrow breaking down

Image source: Getty Images

Why the Zip share price is under pressure

There's no denying 2020 has been a strong year for global and domestic tech shares. Many of the biggest shares have been surging in value since the bottom of the March bear market.

That has all been against a backdrop of intense economic stress and recessionary conditions. Investors are a bit spooked right now and we've seen heavy sell-offs in US tech stocks this week.

Much of the value in ASX tech shares like Zip is based on future growth expectations. That's a hard thing to value right now, which has left investors wondering how high is too high for these tech shares.

The Zip share price is still up a whopping 81.4% for the year. I don't think it's panic stations by any means but is now a good time to buy in?

Is now a good time to buy?

The lofty valuations are an obvious concern for investors. Zip increased full-year revenue by 91% to $161.0 million as transaction volumes also jumped 91% to $2.1 billion.

However, the company still posted an adjusted loss before tax of $44.9 million. That can be beneficial for tax reasons but the point stands that the Zip share price is high for a company that isn't turning a profit (yet). 

Regulatory risk is also always a concern for the BNPL operators.

There's also increasing competition in the BNPL space. Major banks like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) are wading in.

Both of these big four banks announced yesterday that they were introducing no-interest, flat monthly fee card options.

That could open up the market and potentially entice merchants to go to the bank rather than pay fees to Zip.

Foolish takeaway

The Zip share price has been under pressure in recent days but is still up strongly in 2020. I don't think there is any cause for alarm just yet but I won't be entering as a first-time buyer right now.

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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