This ASX growth stock has staged a remarkable turnaround. After surviving the buy now pay later (BNPL) shake-out and refocusing on profitability, Zip Co Ltd (ASX: ZIP) is now delivering strong earnings growth and attracting renewed analyst support.
Here are three reasons why market watchers believe Zip shares could be a compelling growth buy today.
Image source: Getty Images
Profitable growth is finally arriving
The ASX growth stock has spent the past few years shifting away from 'growth at any cost' toward profitable expansion. The strategy now appears to be paying off.
In its latest half-year results, the company reported record cash EBITDA of $124.3 million, up 85.6% year-on-year. Total income climbed 29% to $664 million, while total transaction volume reached $8.4 billion, a 34% increase.
Importantly, bad debts remain under control at around 1.7% of transaction volume, which suggests Zip is managing credit risk effectively while growing its lending book.
For investors who previously worried about sustainability, the improving profitability story is a major shift.
Huge expansion runway in the US
The US business has become the engine of the ASX growth stock. Transaction volumes, revenue, and customer engagement have surged as the platform signs new merchants and rolls out additional payment products.
The US market now generates most of Zip's earnings and continues to grow rapidly. Analysts note that the company is benefiting from strong consumer demand for flexible payments and partnerships with large merchants.
If Zip continues gaining traction in the world's largest consumer market, its long-term growth runway could be far larger than the Australian BNPL opportunity alone.
Analysts see massive upside
The ASX growth stock has lost some serious ground recently. Despite closing 10% higher on Thursday to $1.78, Zip shares have lost 46% over 6 months.
As a result, most brokers have strong buy ratings on the stock, reflecting confidence in Zip's improving profitability and expanding US business.
According to analyst estimates, the fintech share carries an average 12-month price target of around $4.21. Forecasts are ranging from roughly $3.35 to $5.27. That implies 88% to 196% upside from current trading levels.
Foolish Takeaway
Despite the improving outlook, Zip is still a higher-risk growth stock.
The BNPL sector faces intense competition from global payment companies, banks, and tech giants. Regulation is also tightening in several markets, which could impact lending models and compliance costs.
Consumer spending cycles are another factor. If economic conditions weaken and bad debts rise, fintech lenders like Zip can see earnings pressured quickly.
Zip is no longer just a speculative BNPL name. With strong earnings growth, improving margins, and expanding US operations, the ASX growth stock has built a more compelling investment case with plenty of potential upside.
