Zip Co Ltd (ASX: ZIP) shares have enjoyed an impressive rebound recently, climbing 31% over the past month as investor confidence has returned to the buy now, pay later (BNPL) provider.
Despite that strong run, the stock remains down around 6% year to date. Over the past 12 months, however, Zip shares have gained approximately 2%.
Looking at the bigger picture shows why many investors still see plenty of recovery potential. Zip shares remain about 64% lower than they were five years ago, while the S&P/ASX 200 Index (ASX: XJO) has risen roughly 20% over the same period.
With analysts becoming increasingly optimistic about the company's earnings outlook heading into FY27, could the recovery still have plenty of room to run?
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Strong financial momentum
One of the biggest reasons for the improving sentiment is Zip's strengthening financial performance.
The fintech company's results have consistently improved over the past several quarters as management has focused on profitability, disciplined lending, and tighter cost controls.
Its third-quarter FY26 update in April highlighted accelerating momentum across the business. Importantly, management upgraded its FY26 group cash EBITDA guidance to at least $260 million, up from previous guidance of around $248.6 million.
The earnings upgrade demonstrated that Zip is successfully balancing growth with profitability. That's a key milestone for Zip shares after several challenging years for the BNPL sector.
The US is becoming increasingly important
Another major attraction is Zip's expanding opportunity in the United States.
The company has been investing heavily in growing both its customer base and product offering in what is now its largest market. The US BNPL market remains significantly underpenetrated compared with Australia and continues to benefit from increasing consumer adoption and merchant demand.
Late last year, Zip expanded its partnership with programmable financial services company Stripe, allowing more merchants to offer Zip's payment solutions through Stripe's platform. The partnership provides access to a large network of businesses and could accelerate merchant acquisition over time.
Adding to the opportunity, Zip is pursuing a dual listing on the Nasdaq. A US listing of Zip shares could improve the company's visibility among American investors, increase liquidity, and potentially support future expansion initiatives in its largest growth market.
Fierce competition, increased volatility
Of course, investors should remember that Zip operates in a highly competitive industry.
The company faces competition from Klarna, PayPal, Block's Afterpay business, traditional banks, and credit card providers. Intense competition could weigh on margins or slow customer growth.
As a growth stock, Zip is also sensitive to changes in investor sentiment, interest rates, consumer spending, and employment conditions. That means Zip shares are likely to remain more volatile than many defensive businesses.
What are the experts saying?
According to TradingView data, analysts remain overwhelmingly positive on Zip's outlook.
Of the 12 analysts covering the company, 11 have either a buy or strong buy recommendation. Their average price target of $4.17 suggests around 36% upside from current levels.
Some analysts are even more bullish, with the highest price target sitting at $5.59 per share, implying potential upside of roughly 82%.
United Capital Partners (UCPS) is also constructive on Zip shares, arguing that the market is underestimating the company's disciplined cost management and long-term US growth opportunity.
The broker has a 12-month price target of $4.85, which implies potential upside of around 58%. If Zip continues delivering stronger earnings while successfully expanding in the US, that target may not be out of reach.
