Top broker says Zip (ASX:Z1P) share price can rise 22%

Zip's shares could be good value. Here's why…

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It has been a disappointing few weeks for the Zip Co Ltd (ASX: Z1P) share price.

The buy now pay later (BNPL) provider's shares are down 0.5% to $6.80 this afternoon.

This means the Zip share price is now down 20% since this time last month.

Why is the Zip share price falling?

Investors have been selling down the Zip share price since the release of its full year results.

Although the company delivered stellar sales growth, its spiralling costs appear to have spooked the market.

Not even an update at its Retail Investor Day event this week has been able to lift its shares. That update revealed plans to expand into savings accounts and cryptocurrency trading and transacting.

Is this a buying opportunity for investors?

According to a note out of Jefferies, its analysts believe the Zip share price is good value at the current level.

This morning the broker retained its buy rating and $8.28 price target on the company's shares. Based on the current Zip share price, this implies potential upside of almost 22% over the next 12 months.

The note reveals that Jefferies believes that Zip's shares are trading at too large a discount to rivals Afterpay Ltd (ASX: APT) and Affirm.

The broker estimates that Zip's shares trade at 9x FY 2022 sales, whereas Afterpay and Affirm trade on 24x and 25x multiples, respectively.

And while the broker acknowledges that their leadership positions in an increasingly competitive industry warrant higher multiples, it doesn't believe the difference should be as great as it is.

Particularly given Zip's differentiated strategy, which it notes now includes cryptocurrencies and physical payment cards. The broker feels this strategy is the right way to go and also feels that its increased costs to support its global expansion are justified.

All in all, it is positive on the company's growth outlook and continues to rate Zip's shares as a buy.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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