As thing stand, Zip Co Ltd (ASX: ZIP) shares are on course to smash the market with a strong gain in May.
If things stay the same way, the buy now pay later (BNPL) provider's shares will record a 10% gain for the month.
Why are Zip shares smashing the market?
There are a couple of reasons why Zip shares are outperforming in May.
The first relates to proposed regulatory changes in the Australian BNPL industry. While news of the changes were initially received poorly by the market, it didn't take long for investors to realise that they could actually be good news.
Zip believes they will be, highlighting that they are the changes it was championing and is well-prepared for.
This sentiment was echoed at Shaw and Partners, with its analysts suggesting that Zip will benefit from "levelling the playing field."
What else?
This note also got investors excited for another reason, driving Zip shares higher.
Shaw and Partners has suggested that the changes are so favourable for Zip, that it could make it an attractive takeover option for arch rival Afterpay, which is now owned by Block Inc (ASX: SQ2). The broker explains:
This change represents a material net positive to Zip. Importantly with market leadership in the digital space in already utilising this process, Zip's value appears strategically relevant for further acquirers in the space, particularly if you didn't want to miss a beat. APT should have a crack at Zip.
The good news for investors is that the broker still see plenty of upside ahead. It has a high risk buy rating and $2.02 price target on its shares.
