Broker tips 280% upside for Zip share price

There could be huge returns ahead for investors if this broker is on the money with its recommendation.

| More on:
A young woman holds her hand to her mouth in surprise as she reads something on her laptop.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Zip share price could have huge upside potential according to one broker
  • Its analysts have been impressed with the company's performance
  • They believe the market is under-appreciating the company's ability to manage credit losses and other factors

The Zip Co Ltd (ASX: ZIP) share price could be great value at the current level.

That's the view of the team at Shaw and Partners, which see significant upside potential in its shares.

What is the broker saying about the Zip share price?

According to the note, the broker has responded to the buy now pay later (BNPL) provider's half-year results by retaining its buy rating with an ever so slightly trimmed price target of $2.02.

Based on the current Zip share price of 53 cents, this implies staggering potential upside of 280% for investors over the next 12 months.

Though, it is worth noting that given the incredibly high reward, the broker's recommendation comes with a high risk rating.

Why is the broker bullish?

Firstly, Shaw and Partners was impressed with Zip's performance during the first half. It notes that its results support its investment thesis and provides "evidence towards the turnaround occurring."

The broker also notes that this was achieved despite operating in a tough economic environment. It commented:

ZIP delivered 1H23 cash NTM's of 3.5% and gross profit of $122m, which was 35% of revenues and increased YoY ahead of revenues. This is a strong result in the context of the yield (funding/interest rate) and macro (BDD) environment.

Its analysts also appear to see scope for Zip to ease back on its risk settings in the US market given its extremely low credit losses. They add:

We suspect TV has been throttled slightly too much in the USA with credit losses at a measly 1.4%, noting that APT back in the day was targeting NTL of ~2%.

In addition, the broker also believes that this is a clear demonstration of the way that Zip can manage its credit losses (and other factors) better than the market was expecting. It appears to see this as something which could help drive the Zip share price towards its price target over time. It concludes:

Importantly over time we expect recognition to emerge that ZIP can control yields, credit (BDD) and cost base better than the market is currently giving credit towards. Furthermore, ZIP's product construct is attractive to strategic acquirers in our view with Australia leading the way towards BNPL moving towards credit legislation.

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. has positions in and has recommended Zip Co. 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.

More on Technology Shares

A young woman lifts her red glasses with one hand as she takes a closer look at news about interest rates rising and one expert's surprising recommendation as to which ASX shares to buy
Technology Shares

WiseTech share price higher on big news

This tech stock has found its new leader.

Read more »

Man holding a calculator with Australian dollar notes, symbolising dividends.
Technology Shares

$10,000 invested in DroneShield shares 5 years ago is now worth…

You might be laughing all the way to the bank if you had done this.

Read more »

Happy woman working on a laptop.
Technology Shares

Up 60% since April, why this $40 billion ASX 200 tech stock remains a 'compelling buy' today

A leading expert believes this $40 billion ASX 200 tech stock has a lengthy growth runway ahead of it yet.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Technology Shares

DroneShield shares sink 7% despite big news

Let's see what's going on with this market darling on Thursday.

Read more »

A man activates an arrow shooting up into a cloud sign on his iPad.
Technology Shares

Up 25% since April, is it too late to buy Xero shares today?

A leading expert gives his verdict on the growth outlook for Xero shares.

Read more »

Man looking at digital holograms of graphs, charts, and data.
Technology Shares

2 amazing ASX tech shares I wish I'd bought last year

These tech companies are among the world’s best companies.

Read more »

A man in a business suit and tie places three wooden blocks with the numbers 1, 2, and 3 on them on top of each other.
Broker Notes

3 reasons to buy this booming ASX All Ords tech stock today

A leading broker forecasts more gains to come from this surging ASX All Ords tech stock.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »