After a poor start, Zip Co Ltd (ASX: ZIP) shares found their feet and then charged higher on Wednesday.
The buy now pay later provider's shares ended the session 13% higher at $1.83.
This followed the release of a trading update at an investor conference.
Is it too late to invest? Let's see what one leading broker is saying about the company.
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Is it too late to buy Zip shares?
The good news is that analysts at Goldman Sachs don't believe it is too late to invest.
In fact, the broker believes that there is potential for some very strong returns for investors buying Zip shares at current levels.
This morning, Goldman Sachs has initiated coverage on the payments company with a buy rating and $2.50 price target.
Based on its current share price, this implies potential upside of almost 40% for investors over the next 12 months.
What did the broker say?
Goldman believes that the company's shares are undervalued based on the multiples of its peers. It explains:
We initiate coverage on Zip with an A$2.50 price target and a Buy rating. Our valuation is based on a blended (50/50) DCF (WACC 11.8%; TGR +3.0%; RfR +3.5%) and multiple (14x time-weighted FY25/26E Cash Ebtda) valuation methodology, consistent with our offshore analysts. Our 14x Cash Ebtda multiple reflects the mean of global fintech companies, including Affirm, Mastercard, Square and Adyen, and is at a discount to Affirm's target Ebitda multiple (18x; Buy rated and covered by Americas Payments and Financial Technology analyst Will Nance) reflecting Affirm's stronger consensus revenue growth expectations (3-year Cagr of +31% in 2024-27E vs +19% for ZIP ), leading market position in the US (24% share vs 4% GSe as of 2024) and more favorable funding rate position (7.9% vs 7.3%).
Outside this, the broker feels that the company's US business could be the key to causing a re-rating of the multiples that its shares trade on. Goldman adds:
We expect a more favourable economic outlook and continued ZIP outperformance in the US BNPL space would drive a multiple re-rate for ZIP given the compression that has been experienced in the last 6 months on economic outlook concerns, in our view. Our net cash calculation is based on available cash netted against corporate debt (paid down in July 2024). We assign an M&A rank of 3 to Zip as a result of the expected limited number of acquirers that would have a strategic rationale given operational complexity and market positioning.
