Zip Co Ltd (ASX: ZIP) is a share I think many investors still view through the lens of its past rather than its present.
For years, Zip was defined by rapid expansion, heavy losses, and an aggressive growth-at-all-costs mindset that eventually caught up with it when market conditions tightened. That history explains why some investors remain cautious today.
But as we move into 2026, I think the Zip investment case looks very different. It is no longer an early-stage disruptor. Instead, it is a profitable growth machine that has moved down the risk scale. And that is exactly why I see meaningful upside if it continues to execute its strategy successfully.
Earnings growth is now doing the talking
The biggest change at Zip in recent times is that its losses are now firmly behind it and its earnings are growing rapidly.
Consensus estimates point to earnings per share (EPS) growing 27% to 7.9 cents in FY26, then rising 53% to 12.1 cents in FY27. That is not speculative growth. It reflects a business that has moved past survival mode and into a phase where operating leverage is becoming visible.
While Zip still trades at a premium multiple on near-term earnings, that premium narrows materially when viewed through the lens of FY27. At its current share price of $3.28, it is commanding an FY27 PE ratio of 27 times earnings.
For a company still operating in a structurally growing digital payments market, I think that valuation looks increasingly reasonable, provided growth is delivered as expected.
The key point for me is that Zip's growth is now coming from a cleaner base. It is driven by better credit performance, more disciplined customer acquisition, and a sharper focus on profitable regions.
The business model is more disciplined
Zip today is a more focused business than it was a few years ago.
Management has pulled back from less attractive markets, tightened underwriting standards, and prioritised returns over raw transaction growth. That may have reduced headline growth rates, but it has significantly improved the quality of earnings.
Loss rates have stabilised, cost control has improved, and the company is extracting more value from its existing customer base rather than relying on constant expansion. In my view, that makes Zip a far more investable business than it was during its peak hype phase.
This discipline also reduces downside risk. Zip is not immune to economic cycles, but it is better positioned to manage them.
Scale is starting to work in Zip's favour
One of the reasons Zip struggled in the past was that it had not yet reached a scale where fixed costs could be absorbed efficiently.
That dynamic is now changing.
As transaction volumes grow and revenue scales, incremental margins are improving. This is where the earnings leverage becomes important. Zip does not need explosive growth to deliver strong earnings progression. It simply needs steady volume growth combined with continued cost discipline.
If that happens, profitability can increase faster than revenue, which is exactly what long-term investors want to see.
A more credible long-term growth profile
Buy now, pay later is no longer a novelty. It is a mature and competitive market.
But that does not mean growth has disappeared. It means the winners will be those that combine scale, risk management, and brand relevance. Zip remains a well-recognised platform with a meaningful customer base and merchant network, particularly in its core markets.
Rather than chasing every opportunity, Zip now appears focused on defending and deepening its strongest positions. I think that approach gives it a more credible long-term growth profile than many investors assume.
The risk is still there, but the balance has improved
Zip shares are not risk-free.
Economic conditions, consumer credit quality, and competitive pressures will always influence performance. And any setback in execution could weigh on sentiment.
But compared to previous years, the risk-reward balance looks more attractive. The business is profitable, earnings are growing, and the valuation is no longer pricing in perfection.
Foolish takeaway
I think Zip shares offer major upside in 2026 because the business has finally aligned growth with earnings discipline.
At a share price of $3.28, if management continues to execute and earnings grow toward FY27 expectations, I believe the market could reassess what it really is worth. For me, that's a lot more than its current valuation.
