Zip Co Ltd (ASX: ZIP) shares are pushing higher again on Monday as buyers return to the buy now, pay later (BNPL) stock.
At the time of writing, the Zip share price is up 8.33% to $3.12.
That extends a strong recent run for the ASX 200 stock. Zip shares are now up around 40% over the past month, although they remain below their 52-week high of $4.93.
More than 18 million shares had changed hands by early afternoon, with Zip trading between $2.93 and $3.14.
Here's what appears to be helping sentiment today.
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Profit momentum is doing the work
The main reason buyers are returning is that Zip is no longer being judged only on transaction growth.
According to Zip's latest quarterly update, total transaction volume (TTV) rose 22.4% to $4 billion in the third quarter of FY26.
Total income increased 20.2% to $335.2 million.
More importantly, record cash EBTDA rose 41.5% to $65.1 million, while the operating margin expanded to 19.4%.
That was enough for management to upgrade FY26 group cash EBTDA guidance to at least $260 million.
The US business is still doing much of the heavy lifting though.
Zip said US transaction volume and revenue both grew more than 43% in US dollar terms, while US active customers increased 9%.
Bad debts are still being watched
While the growth is certainly positive, bad debts still remain one of the key risks.
Group net bad debts rose to 1.93% of transaction volume in the third quarter, up from 1.64% a year earlier.
However, Zip advised US net bad debts were steady at 1.86% of transaction volume and are expected to fall below 1.75% in the fourth quarter.
Nonetheless, the next update will be very important. Zip has the profit momentum, but it still needs to show that its bad debts are under control.
Brokers still see some upside
The broker backdrop also looks supportive.
Recent price targets include $3.10 from UBS, $3.40 from Macquarie, $3.80 from Jefferies, and $4 from Ord Minnett.
TradingView data also shows analysts have an average 12-month price target of $3.82 for Zip, with estimates ranging from $2.60 to $5.40.
At $3.82, the average target still sits above where Zip shares are trading today.
However, the stock has moved quickly.
The relative strength index (RSI) is sitting around 70, which points to strong momentum. But after a 40% monthly gain, it also tells us that Zip may be running a little hot in the short-term.
Can the rally keep going?
Zip is in a much better position than it was a few months ago.
The company is growing, earnings are improving, brokers remain positive, and the share buyback is still running in the background.
Zip announced an on-market buyback of up to $50 million in February, with regular buyback updates continuing through June.
However, the stock has already moved quickly over the past month, so the next update will need to excite the market.
