The Afterpay Ltd (ASX: APT) share price and the Zip Co Ltd (ASX: Z1P) share price have been strong performers on Tuesday.
In morning trade the buy now pay later platform providers' shares were up as much as 8.5% and 11%, respectively.
At the time of writing Zip Co's shares have given back the majority of these gains, but the Afterpay share price is still up a solid 6%.
Why did Afterpay and Zip Co jump higher?
As well as benefiting from improving investor sentiment following a positive night of trade on Wall Street, the release of a broker note this week appears to have given them a boost.
Analysts at Morgans have retained their add rating on Afterpay's shares and upgraded Zip Co's shares to an add rating from hold.
Furthermore, the broker has lifted its price target on Afterpay's shares to $39.92 and trimmed the price target on Zip Co's shares to $3.23. This implies potential upside of ~15% and ~14.5%, respectively, over the next 12 months.
Why does Morgans like Afterpay?
The broker was impressed with Afterpay's top line growth during the first half of FY 2020.
And while it was a touch surprised with its higher expenses, which led to a greater than expected net loss, it appears to believe these investments will pay off in the future.
Morgans also notes that the company has a significant market opportunity internationally and expects this to drive strong growth over the long term.
What about Zip Co?
As with Afterpay, Zip Co posted a greater than expected loss during the first half.
Although this has led to the broker forecasting a lower cash margin and downgrading its forecasts materially, it believes the pullback in its share price has created a buying opportunity.
Should you invest?
I think both companies could be worth considering in March after their recent pullbacks.
Though, I would limit the investment to just a small part of your overall portfolio due to the risks they carry.
