Zip Co (ASX:ZIP) Valuation Check As New Gift Card Partnership Expands Installment Use Cases

Gift card partnership adds a new use case for Zip Co (ASX:ZIP) Zip Co (ASX:ZIP) has partnered with InComm Payments to let eligible shoppers buy gift cards in installments directly in the Zip app, extending its Buy Now Pay Later model into the gift card category. See our latest analysis for Zip Co. The partnership news arrives after a mixed run for the stock. The latest A$2.30 share price sits alongside a 1-day share price return of 4.55% and a 90-day share price return of 20.42%. However, the year-to-date share price return is down 31.34%, while total shareholder return stands at 15.87% over one year and shows a very large gain over three years. This suggests that long-term holders have experienced strong momentum even as shorter-term sentiment has recently cooled. If this kind of product expansion catches your eye, it can be worth seeing which other companies are building new revenue streams and customer bases through flexible payment models, starting with 4 top founder-led companies With A$1.22b in revenue, A$109.24m in net income and a share price around A$2.30 that sits well below the average analyst target, the key question is whether Zip is undervalued or if markets are already pricing in future growth. Most Popular Narrative: 9.8% Undervalued Against the last close at A$2.30, the most followed narrative from the community pegs Zip Co's fair value at A$2.55, implying some upside based on those assumptions. At Zip Co's current price of $1.605, it presents very attractive upside value to risk due to the valuation metrics listed above. By giving Zip Co a FAIR approx. price to sales ratio of 3x, we receive a price of $2.55, representing a ~37% discount. Zip being seen as a lending company may mean economic headwinds regarding interest rates slow volume into the stock. Read the complete narrative. Curious what sits behind that A$2.55 figure according to Kallan? The narrative is based on revenue growth assumptions, the potential for improving margins, and a future earnings multiple that reflects continued scaling assumptions. Result: Fair Value of A$2.55 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, this hinges on credit losses, funding costs and US expansion staying on track. Any deterioration here could quickly challenge that 9.8% undervalued view. Find out about the key risks to this Zip Co narrative. Another Take: Earnings Multiple Sends A Different Signal The community narrative leans on a price to sales view, but the current P/E of 26.4x tells a tougher story. It sits far above the global Consumer Finance average of 10.9x and the 10x peer average, and even matches its own fair ratio of 26.4x, which leaves less room for error if growth or credit quality slip. For investors who care about what happens if that earnings multiple cools off, the valuation breakdown is a useful cross check on the story so far, starting with See what the numbers say about this price — find out in our valuation breakdown. Next Steps Does this mix of growth hopes and valuation questions leave you on the fence? Take a closer look at the full set of signals by starting with 2 key rewards and 1 important warning sign. Looking for more investment ideas? If Zip Co has your attention, do not stop there. Broaden your watchlist now so you are not relying on a single stock story. Hunt for quality at a discount by scanning 8 high quality undervalued stocks before prices shift away from you. Secure potential income streams by checking out 6 dividend fortresses that might strengthen your portfolio's cash flow. Sleep easier at night by reviewing 6 resilient stocks with low risk scores that aim to keep volatility and risk in check. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.