Zip share price crashes, ASX queries bullish price action

After a furious run over the last month, the Zip (Z1P) share price crashed sharply on Wednesday, hitting an intraday low of $11.27. While the stock recovered somewhat by the afternoon session, it remained down over 10%.

Financial markets are deeply complex systems that often move in inexplicable ways. Humans after all, are not rational creatures. And when money is involved, they can become even more irrational.

Zip, for whatever reason, has caught the eye of investors and traders recently. Despite today’s sell off – it’s still up over 100%. As we discussed at length yesterday, there are fundamental reasons behind this run: the Q2 update was strong and investors seemed to receive it positively.

At what point does a positive reception become a problem?

Well, the Australian Stock Exchange (ASX) was keen to get to the bottom of what’s behind the recent share price run – yesterday issuing the company with a price query.

Zip share price: Anatomy of an ASX price query

Taking one step back, the ASX will often issue price queries – colloquy referred to as ‘speeding tickets’ – when a stock exhibits abnormal price moves. This is typical for microcaps, which are prone to experiencing volatile price swings, both up and down. Zip though is hardly a microcap, boasting a market cap close to $7 billion – after today’s sell down.

On a theoretical level, As Capital Markets CRS plainly puts it:

‘There are two possible explanations for an abnormal price change: 1. It was an anomalous movement, or 2. It was driven by an investor’s information advantage.’

Centrally, Zip’s response to the ASX price query suggests there’s no reason to believe it was point two, but rather the recent share price run is merely an ‘anomalous movement’.

As part of its response, Zip's management team reiterated their compliance with ASX listing rules, while saying that 'the company is not aware of any information concerning it that has not been announced to the market which, if known by some in the market, could explain the recent trading in its securities.'

Indeed, Zip flagged three more things which have likely contributed to the bullish price action of its stock in the last month.

First, the company noted the general optimism which the market has had for BNPL stocks in general. Indeed, while true that Zip has performed strongly in recent times, Afterpay and Sezzle, for example, have also seen strong share price gains, with both up significantly in the last year. It should also be noted that Zip continues to trade on a lower price to sales ratio of both those companies.

Finally, Zip also pointed to its successful placement, share purchase plan and solid Q2 trading update as factors which may have contributed to its recent share price run.

Zip finished out the session down 14.01% at $11.97.