3 reasons I would buy Zip shares in November

Zip Co Ltd (ASX: ZIP) shares have had a difficult few weeks.

After a sharp sell-off in October, the buy now, pay later provider's shares are entering November at around $1.79.

That's a considerable discount to where they were trading earlier this year.

But despite the recent disappointment, I still think Zip has plenty to offer long-term investors.

Here are three reasons why I would be happy to buy its shares this month.

Strong growth in the US

The first reason I would buy Zip shares is the company's considerable growth opportunity in the United States.

Zip has spent several years building its presence in the world's largest consumer market, and I believe there is still plenty of room for expansion.

Last month's first-quarter update showed that US transaction volumes increased 34.1% during the first quarter of FY27, while revenue rose 32% in local currency.

I was also encouraged by the growth in customer engagement. US customers made 27% more transactions on average than they did a year earlier, suggesting Zip is becoming a more regular payment option for its users.

This is encouraging because it gives the company an opportunity to grow revenue from its existing customer base while continuing to attract new users.

Zip is also expanding its merchant relationships, including a recent announcement that its payment services are now available in Best Buy (NYSE: BBY) stores across the United States.

I believe these developments put Zip in a good position to continue growing its US business over the coming years.

Its recent problems look manageable

My second reason is that I don't believe Zip's recent challenges have fundamentally changed its long-term prospects.

The company's update also revealed that an external fraud incident in the US resulted in $10.1 million of additional operating expenses.

Measures introduced to contain the problem slowed transaction volumes and new customer growth during July and August.

I can understand why investors were disappointed. Managing credit risk and preventing fraud are essential for a business like Zip, and I would certainly want to see evidence that its new controls are effective.

However, there were some encouraging developments in the update. US transaction volume growth accelerated to 41% in September, suggesting the business was already recovering from the disruption.

Management also maintained its FY27 guidance, including its target of $340 million in group cash earnings before tax, depreciation and amortisation. I think that's reassuring, particularly given the challenges experienced during the quarter.

There could still be further setbacks, but I believe Zip has an opportunity to restore investor confidence by delivering on its guidance and demonstrating that its credit controls are working.

Zip shares look good value

My final reason is Zip's valuation. At around $1.79, I think investors are getting an opportunity to buy into a growing financial technology business at a relatively modest earnings multiple.

According to CommSec's consensus forecasts, Zip shares are trading on a forward price-to-earnings (P/E) ratio of approximately 12.2 times FY27 earnings.

That falls to 11.2 times for FY28 and just 8.6 times for FY29.

I think those multiples look cheap given the company's growth potential, especially in the US.

Of course, the forecasts are dependent on Zip continuing to grow profitability, and any further problems with credit losses or fraud could affect its earnings.

Nevertheless, if the company can deliver anything close to the expected earnings growth, I believe its shares could be worth considerably more in a few years.

Foolish takeaway

I think November could be a good time to buy Zip shares.

The company's US business continues to grow strongly, its recent challenges appear manageable, and the current valuation looks attractive.

There is still plenty of work ahead, particularly when it comes to rebuilding investor confidence. But at $1.79, I believe Zip offers an opportunity for patient investors who are comfortable with some volatility.

The post 3 reasons I would buy Zip shares in November appeared first on The Motley Fool Australia.

Motley Fool contributor Grace Alvino 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 Best Buy. 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. 2026