Why the Zip (ASX:Z1P) share price can go even higher

The Zip Co Ltd (ASX:Z1P) share price may have been on fire this year but could still go 20% higher from here according to one broker…

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The Zip Co Ltd (ASX: Z1P) share price was an exceptionally strong performer last week.

The buy now pay later (BNPL) provider’s shares smashed the market with a gain of 13%.

This made the Zip share price the best performer on the ASX 200 index. It also stretched its year to date gain to 67%.

Why did the Zip share price rocket higher?

Investors were bidding the Zip share price higher last week after its third quarter update impressed the market.

For the three months ended 31 March, Zip recorded an 80% increase in group quarterly revenue to $114.4 million. This was driven by strong customer and transaction growth, particularly from its Quadpay business.

Active customers reached 6.4 million globally, up 88% on the prior corresponding period and 12.3% from 5.7 million at the end of December. As for transactions, Zip reported a 195% increase in transaction numbers to 12.4 million and a 114% jump in quarterly transaction volume to $1.6 billion.

Is it too late to invest?

According to one leading broker, there’s still decent upside left in the Zip share price.

Last week Bell Potter put a buy rating and $11.30 price target on the company’s shares.

Based on the latest Zip share price, this implies potential upside of almost 21% over the next 12 months.

It commented: “We are surprised with the timing of the $400 million convertible note issuance when considering that Zip recently raised ~$180 million in equity and the company has not provided any new use cases for the additional capital. While the additional capital reduces Zip’s interest costs and strengthens the balance sheet, we do not anticipate material changes to consensus forecasts on the back of it. We maintain our Buy rating as we see upside risks to our near-term forecasts driven by Quadpay.”

All in all, although Zip’s shares have been on fire in 2021, the gains may not be over according to this broker.

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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 ZIPCOLTD FPO. 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 Bruce Jackson.

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