National Australia Bank Ltd (ASX: NAB) has seen a significant surge in its share price over the past year, climbing 36%, with an additional 11% gain in 2026 alone. Despite this impressive performance, many financial analysts believe the $143 billion banking behemoth is currently trading above its intrinsic value. At its current share price of $46.82, investors may be wise to explore alternative opportunities within the Australian Securities Exchange (ASX).
One such compelling prospect lies in the smaller, dynamic fintech sector, specifically with Zip Co Ltd (ASX: ZIP). This prominent buy now, pay later (BNPL) provider concluded the recent trading week on a positive note, with its shares rising by 3.7% to $1.85. Crucially, industry experts are forecasting substantial upside potential for Zip, while suggesting a more cautious outlook for NAB shares. Let’s delve into the reasons behind this divergence.
Profitable Growth Finally Arrives for Zip Co
The ASX growth stock, Zip Co Ltd, is now demonstrating the robust financial performance that investors have eagerly anticipated. In recent years, the company has strategically pivoted away from a “growth at any cost” philosophy, instead prioritising sustainable expansion coupled with enhanced profitability. This deliberate shift in strategy is now clearly reflected in its latest financial results.
In its most recent half-year reporting period, Zip Co achieved a record cash earnings before interest, taxes, depreciation, and amortisation (EBITDA) of $124.3 million. This represents a remarkable 85.6% increase when compared to the corresponding period last year. Total income experienced a healthy growth of 29%, reaching $664 million, while total transaction volume surged by 34% to $8.4 billion.
Equally important is the company’s effective management of credit risk. Bad debts have been maintained at a controlled level, hovering around 1.7% of transaction volume. This indicates Zip’s proficiency in managing credit exposure even as its lending portfolio continues to expand. For investors who may have previously harboured doubts about the long-term viability of the BNPL business model, this significant improvement in profitability marks a pivotal turning point.
Significant Expansion Runway in the United States
The United States market is now emerging as the primary engine for Zip’s ongoing growth narrative. The company is witnessing a consistent uplift in transaction volumes, revenue generation, and customer engagement across the US. This positive trajectory is attributed to successful merchant onboarding and the strategic rollout of innovative payment solutions.
Currently, the US market contributes the majority of Zip’s overall earnings, and its growth momentum in this region remains exceptionally strong. Analysts highlight that Zip’s US operations are benefiting from a confluence of factors, including increasing consumer demand for flexible payment alternatives and strategic partnerships with major retailers.
Should Zip Co continue to capitalise on the opportunities within the world’s largest consumer market, its long-term growth potential could far surpass that of the Australian BNPL landscape alone.
What Lies Ahead for Zip and NAB Shares?
Despite the positive developments, Zip Co’s ASX growth stock has experienced a notable decline in its share price recently. While Zip shares saw a significant jump of 14% over Thursday and Friday, they remain down by 44% year-to-date.
This substantial price correction has not gone unnoticed by market analysts. A majority of brokers now classify Zip as a “strong buy,” underscoring their confidence in the company’s improving profitability and the burgeoning US business segment.
Based on analyst projections, Zip shares currently hold an average 12-month price target of approximately $4.21. These forecasts vary, with estimates ranging from roughly $3.35 to a high of $5.27. At current trading levels, this suggests a potential upside of between 82% and a remarkable 186%.
In contrast, brokers are considerably less optimistic about the prospects for NAB shares. Despite delivering a solid quarterly update, Morgans, a prominent brokerage firm, has expressed the view that NAB’s shares are overvalued at their present price. Morgans has consequently issued a “sell” rating for the big four bank’s stock, setting a price target of $37.27.
This valuation implies a potential downside of 20.3% for investors holding NAB shares at current prices. The most bearish analyst anticipates a maximum downside of 36%, while the most optimistic forecast suggests a modest 8% upside for NAB.
Navigating Your Investment Decisions
For investors considering their next move, the divergent outlooks for Zip Co and National Australia Bank present a clear choice. While NAB has demonstrated past strength, its current valuation and analyst sentiment point towards limited upside and potential risk. Zip Co, on the other hand, despite recent market headwinds, is showing strong signs of fundamental improvement and a significant growth runway, particularly in the lucrative US market, making it a compelling option for those seeking higher potential returns.
