Up 748% in a year, why a 'long growth runway remains' for Zip shares

Up 748% in a year, these top fund managers remain bullish on the outlook for Zip shares in 2025.

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In case you haven't noticed, Zip Co Ltd (ASX: ZIP) shares have been on a phenomenal run over the past 12 months.

How phenomenal?

Well, 12 months ago you could have snapped up the S&P/ASX 200 Index (ASX: XJO) buy now, pay later (BNPL) stock for 40 cents a share. At market close yesterday, those same shares are swapping hands for $3.39 apiece.

That sees this ASX 200 stock up an eye-popping 747.5%.

Or enough to turn a $5,000 investment into $43,725.

In 12 months.

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For some context, the ASX 200 has gained 20.01% since this time last year.

Now, the stock still has a long way to go before resetting the high of $12.35 a share set at market close on 19 February 2021. However, Zip easily takes the number one spot as the best-performing ASX 200 company over the past year.

But after this stellar one-year run, the big question is: Can Zip shares keep on delivering in 2025?

Zip shares and the US market

According to Adrian Ezquerro and Jonathan Wilson, portfolio managers at the Elvest Fund, Zip shares will very likely continue outperforming in the year ahead.

And the long-only fund, which invests in 20 to 40 companies at any given time, has a strong track record.

The company's website reports that the Elvest Fund returned 5.5% for November versus the benchmark return of 1.3%. Since inception, the fund has returned a total of 46.7% after fees, compared to the benchmark return of 12.1%

As for the outperformance in November, Wilson and Ezquerro said Zip shares were among the key contributors.

Indeed, the ASX 200 BNPL stock gained 13.3% in November.

"Zip added to recent gains following the release of its Q1 results in late October. Led by strong growth in its US division, Q1 group cash earnings were up 234% to $31.7 million," the fund managers noted.

Commenting on the outlook, they said, "A long growth runway remains, especially in the key US market, where BNPL penetration of just 2% compares to 15% to 20% in jurisdictions like Australia and the UK."

What's been sending the ASX 200 BNPL stock flying higher?

From a big-picture perspective, Zip shares have been benefiting from falling interest rates in the US, where the Elvest Fund managers expect the company to grow its presence. And while we've had to be more patient here in Australia, forward-looking ASX investors are likely positioning for the RBA to begin cutting rates in 2025.

And as Wilson and Ezquerro pointed out, the company's earnings growth metrics have been fantastic.

Commenting on the strong Q1 FY 2025 performance in the US market helping drive Zip shares higher, CEO Cynthia Scott said:

Our US business continued to deliver outstanding growth, with TTV [total transaction value] up 42.8% and revenue up 43.9%, versus 1Q24, driven by ongoing engagement in higher-margin channels such as the App.

Motley Fool contributor Bernd Struben 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.

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