Zip Co (ASX:ZIP) Valuation in Focus After Expanding Stripe Partnership for US Market Growth

Zip Co (ASX:ZIP) has expanded its US partnership with Stripe, making its pay in installments option available across Stripe's optimized checkout tools. Merchants can now enable Zip easily from their Stripe Dashboard, which opens access to new customer segments.

See our latest analysis for Zip Co.

Momentum has picked up for Zip Co in 2024, with a year-to-date share price return of 31.65% and a striking 20.31% rally over the last 90 days, even after a recent pullback. While the 1-year total shareholder return stands at 29.47%, long-term investors have seen a massive 525.60% total return over three years. This highlights how much the company has bounced back from prior volatility.

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With shares trading at a meaningful discount to analyst targets and Zip’s growth accelerating, is the current price a rare chance to buy into a financial disruptor? Or has the market already factored in the company’s future gains?

Most Popular Narrative: 26.6% Undervalued

The narrative places Zip Co's fair value significantly above its last close of A$3.91, suggesting the market may currently be overlooking Zip's earnings potential. With optimistic revised forecasts, this sets the stage for close scrutiny of the factors behind that valuation.

Zip Co is poised to benefit from the accelerating shift toward digital payments and increasing e-commerce penetration, as evidenced by strong transaction volumes (up 30%) and targeted partnerships with platforms like Google and Stripe. These are likely to drive higher transaction values and revenue growth.

Read the complete narrative.

Interested in what is fueling this positive outlook? The narrative's fair value is based on ambitious revenue growth, a notable earnings increase, and a strong profit projection. Explore which future milestones analysts believe Zip could achieve, and how these projections might influence the market's perception of the company.

Result: Fair Value of $5.33 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, rising regulatory scrutiny or unexpected increases in bad debts could quickly challenge Zip Co’s growth outlook, potentially pressuring its improving margins.

Find out about the key risks to this Zip Co narrative.

Another View: A Look Through Multiples

While our narrative-based fair value points to upside, a quick check of Zip Co’s price-to-earnings ratio tells a different story. At 63x, Zip’s shares are selling at a much steeper multiple than the global Consumer Finance industry’s 13.7x, its peer average of 12.1x, and a fair ratio of 27.8x. This wide gap suggests investors are paying up for high growth expectations, but also exposes them to valuation risk if results disappoint. Is the premium justified, or could this optimism fade?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Zip Co Narrative

If you see things differently or want to dig into the numbers on your own terms, it only takes a few minutes to craft your own story, so why not Do it your way

A great starting point for your Zip Co research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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