Did The Underlying Business Drive Zip Co's (ASX:Z1P) Lovely 456% Share Price Gain?

Simply Wall St

Generally speaking, investors are inspired to be stock pickers by the potential to find the big winners. Not every pick can be a winner, but when you pick the right stock, you can win big. One bright shining star stock has been Zip Co Limited (ASX:Z1P), which is 456% higher than three years ago. It's also up 93% in about a month.

View our latest analysis for Zip Co

Given that Zip Co didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Zip Co's revenue trended up 72% each year over three years. That's much better than most loss-making companies. In light of this attractive revenue growth, it seems somewhat appropriate that the share price has been rocketing, boasting a gain of 77% per year, over the same period. It's always tempting to take profits after a share price gain like that, but high-growth companies like Zip Co can sometimes sustain strong growth for many years. In fact, it might be time to put it on your watchlist, if you're not already familiar with the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

ASX:Z1P Income Statement May 28th 2020

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

It's nice to see that Zip Co shareholders have gained 6.6% (in total) over the last year. That falls short of the 77% it has made, for shareholders, each year, over three years. It's always interesting to track share price performance over the longer term. But to understand Zip Co better, we need to consider many other factors. For instance, we've identified 3 warning signs for Zip Co that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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This article by Simply Wall St is general in nature. 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. Thank you for reading.