The Zip Co Ltd (ASX: ZIP) share price is appealing to experts, which is why the broker UBS has an optimistic outlook for growth.
The buy now, pay later business is enabling customers to pay for items and services in instalments, which may be particularly appealing in the current high cost of living.
Its two key markets are Australia and the US. In-fact, the business has achieved so much growth in the US, it's now generating a greater portion of the company's revenue.
Let's take a look at why the broker is a fan of the business.
Buy rating on Zip shares
UBS rates Zip as a buy, with a price target of $3.40. A price target is where the expert thinks the share price will be in 12 months from the time of the investment call.
The broker is attracted to the business based on the strong revenue momentum it's seeing in the US.
UBS noted that US buy now, pay later players are reporting strong growth and credit performances across the board. Zip itself has accelerated US customer growth while the credit loss performance remains "unchanged".
In UBS' view, this means Zip has "capacity to invest harder into marketing in the US to generate greater net new customer growth from here, supporting the medium term top-line outlook."
The recent updates from Zip show the "earnings momentum story as well and truly intact", according to the broker. Both April and May 2025 showed US dollar total transaction value (TTV) growth of more than 40%, which was an acceleration of year-over-year growth compared to the third quarter of FY25.
Due to Zip's "strong growth outlook, operating leverage potential and conservatism", UBS has a buy on Zip shares.
In FY26, UBS is predicting that Zip could achieve $1.07 billion of revenue and make a net loss of $6 million.
But, the broker also noted that every 25 basis points of an interest rate cut equates to an additional $5 million of earnings because of a lower interest expense.
UBS noted that operating expenditure is forecast to increase in FY26 by 15% year-over-year to support the growth outlook, but it could see improving operating leverage across the business. The broker is expecting a "conservative" 80 basis point increase of the cash EBTDA margin in FY26.
What about the long-term valuation?
UBS projects Zip could start making a positive net profit in FY26.
By FY29, the company could make $167 million of net profit after tax and 13 cents per earnings per share (EPS). This could mean the current Zip share price is valued at 25x FY29's estimated earnings.
If the broker is right, the business could be on course for delivering progressive net profit improvements in the coming years. That could be a strong tailwind for the Zip share price.
