Up 71% in 3 weeks, have Zip shares topped out?

Despite the stellar run higher, Zip shares are still trading at a fraction of their February 2021 highs.

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Zip Co Ltd (ASX: ZIP) shares have handed investors some serious gains since mid-October.

Following a painful multi-year sell-down, shares in the All Ordinaries Index (ASX: XAO) buy now, pay later (BNPL) stock reversed course in October. And the remarkable rebound has shown few signs of slowing down.

As you can see on the chart above (if you look closely), the ASX BNPL stock is up 427% since the closing bell on 6 October. That will have turned a $5,000 investment on 6 October into $26,350 today.

And in the past three weeks alone, since market close on 27 February, Zip shares have leapt 71%, currently trading for $1.37 apiece.

With those kinds of eye-popping gains already in the bag, has the company's charge higher topped out?

Where to now for Zip shares?

Well, there are two ways to look at this.

First, a stock can't continue to gain 400% every five months indefinitely.

Second, despite the stellar recent run, Zip shares are still trading at a fraction of their February 2021 highs, when the stock reached $12.38.

Now, no one (as far as I'm aware) is expecting Zip to reset those highs anytime soon.

But Citi believes there are more potential gains on the table for the company. Albeit much more modest than the past weeks' surge.

Last week, when the ASX BNPL stock was trading for $1.30 a share, the broker lifted its target for Zip by 79% to $1.40. At current levels, that still represents a potential 2% upside.

On the other hand, Toby Grimm, managed portfolio analyst at Baker Young, believes the big run higher has likely peaked and has a 'sell' rating on Zip shares.

According to Grimm (courtesy of The Bull), "This consumer finance firm delivered better than forecast half year results in fiscal year 2024. Measures to improve profitability drove a rebound in underlying earnings."

Indeed, revenue was up by 28.9% year on year to $430 million. That was driven by a 9.6% increase in total transaction volume (TTV), which reached $5 billion. And Zip's cash gross profit leapt 45.9% to $176 million.

But Grimm believes those strong metrics have now been fully priced into Zip shares.

"The stock is trading at a significant premium to our fair valuation. Investors may want to consider taking profits at these levels," he said.

As always, whether you're looking at buying or selling Zip – or any other ASX stocks – be sure to do your own research first.

If you're not comfortable with that, or just don't have the time, then simply reach out for some expert advice.

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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