Zip Co Ltd (ASX: ZIP) shares have had a wild ride over the past few years.
The buy now, pay later sector went from market darling to market warning sign in a short period of time.
Rising interest rates, funding concerns, credit losses, and questions about long-term profitability all weighed heavily on investor confidence.
But Zip today looks very different to the business many investors remember from the boom years.
It is more focused, more disciplined, and now being judged on earnings rather than only transaction growth. That makes the current valuation worth a closer look.
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The numbers look interesting
Zip shares are currently trading around $2.78.
Based on consensus forecasts from CommSec, the company is expected to generate earnings per share of 9.2 cents in FY26, 10.9 cents in FY27, and 17 cents in FY28.
That means Zip is trading on roughly 30 times FY26 earnings, 26 times FY27 earnings, and 16 times FY28 earnings.
For a lower-growth business, that would not look especially cheap. But Zip is expected to grow earnings strongly over the next few years. If those forecasts prove accurate, the valuation starts to look much more reasonable as investors look further out.
The FY28 number is the one that stands out to me. A price-to-earnings ratio of around 16 times does not look demanding for a business that is still expected to be growing quickly.
That is why I think Zip shares could be undervalued based on the current forecasts.
Could Zip double?
Could Zip shares double by 2030?
That is hard to predict with confidence. A lot needs to go right between now and then, and Zip remains a higher-risk ASX 200 share.
But I do not think the idea is outlandish.
Zip's 52-week high is $4.93. A return to that level would already be close to a double from the current share price. Reaching that point again by 2030 would require stronger investor confidence, continued earnings growth, and evidence that the company can keep building a sustainable, profitable business.
The key point is that Zip does not need to reach some distant, never-seen-before valuation to make the idea possible. The shares have traded much higher within the past year.
Of course, a previous high is not a target or a guarantee. The market will need a reason to re-rate the stock. That reason would likely have to come from earnings momentum, better margins, credit discipline, and stronger confidence in the US opportunity.
Brokers are positive
Another factor worth noting is broker sentiment.
According to CommSec, the consensus rating on Zip is a strong buy. That includes 10 strong buy ratings, 2 moderate buy ratings, and no hold, moderate sell, or strong sell ratings.
I would never buy a share only because brokers are positive. Analysts can be wrong, and ratings can change quickly if the numbers disappoint.
But that level of support does suggest the market's professional watchers see more upside than downside from here.
What needs to happen
For Zip shares to double by 2030, the company will need to keep executing.
It needs to grow strongly beyond FY28, maintain sensible credit settings, manage funding costs, and keep attracting customers without chasing poor-quality growth.
That last point is important. The buy now, pay later boom showed that growth without discipline can destroy value. The more attractive version of Zip is a company that grows transactions, but also protects margins, controls losses, and keeps improving earnings per share.
If management can do that, I think the share price has room to move a lot higher over the next few years.
Foolish takeaway
Zip shares are still risky, and I would not treat a potential double as a simple base case.
But I do think the setup is interesting. The shares are trading well below their 52-week high, the forward valuation looks much more attractive, and brokers are strongly positive on the stock.
If Zip keeps growing earnings, proves the quality of its customer base, and shows that its profit momentum can continue beyond the next few years, I think a much higher share price by 2030 is possible.
