Shares of Zip Co Ltd (ZIP.AU), the Australian buy now pay later provider, are soaring 5.48% in Thursday's trading session, building on the momentum from the previous day's 13% gain. The latest surge comes as Goldman Sachs initiates coverage on the company with a bullish outlook, adding to investor optimism following a recent trading update.

Goldman Sachs has started coverage on Zip with a buy rating and a price target of $2.50, implying a potential upside of almost 40% from current levels. The investment bank's analysts believe Zip's shares are undervalued compared to its peers in the global fintech space. They base their valuation on a blend of discounted cash flow analysis and multiple-based valuation, using a 14x Cash EBTDA multiple, which is in line with the mean of global fintech companies like Affirm, Mastercard, Square, and Adyen.

The positive outlook for Zip is further bolstered by expectations of strong performance in the US market. Goldman Sachs suggests that Zip's US business could be key to driving a re-rating of the company's trading multiples. Analysts note that a more favorable economic outlook and continued outperformance in the US buy now pay later space could lead to a multiple re-rate for Zip, potentially offsetting the compression experienced in the last six months due to economic concerns. This optimistic view comes on the heels of Zip's trading update presented at a recent investor conference, which appears to have reinforced confidence in the company's growth trajectory.