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.

| More on:
A young woman smiles as she rides a zip line high above the trees.

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

sdf

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.

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.

More on Share Gainers

Man smiling on top of rocks with mountains in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors were in a nervous mood today.

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Share Gainers

Why Beach Energy, Boss Energy, Cochlear, and Light & Wonder shares are pushing higher

These shares are having a good time on hump day. But why?

Read more »

A man looking at his laptop and thinking.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a disappointing Tuesday session for ASX investors today.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Thinking of selling your CBA shares? This expert says you should hold on

CBA shares are up by about 80% since November 2023.

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
Share Gainers

Why Bannerman Energy, Clarity, DroneShield, Lotus Resources are charging higher

These shares are making their shareholders smile on Tuesday. But why?

Read more »

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors managed to ease out a gain from the markets today.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Paladin Energy, Santos, Tourism Holdings, and Woodside shares are racing higher

These shares are starting the week with a bang. But why?

Read more »

The silhouettes of ten people holding hands with their arms raised against the sky, as the sun rises or sets in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors were nervous this Friday, ending the week on a sour note.

Read more »