No other member of the S&P/ASX 200 Index (ASX: XJO) has put on a better show than Zip Co Ltd (ASX: ZIP) over the past 12 months. The buy now, pay later service provider is up 760% in a year, with the Zip share price cracking $3.44 today.

Today's rally cements another new 52-week personal best for Zip in what is fast becoming one of the greatest U-turns in recent history.

As shown above, Zip shares ascended to their summit in February 2021, breaking the $13 barrier before succumbing to an avalanche down below $1. However, refusing to quit, the Afterpay competitor has clawed its way out from the 2023 depths and into 10-bagger status once more.

Comeback story continues for Zip share price

Who doesn't love a lower interest rate?

I can think of a few: retirees, insurance companies with cash invested in bonds, young savers…

But do you know who loves it when JPow (Jerome Powell) of the United States Federal Reserve takes a knife to rates?

Buy now, pay later companies.

Zip, Afterpay, and Klarna all provide upfront financing so customers can go home with a product in hand despite only paying one-fourth of its price. These BNPL companies do this with debt that accrues interest, so the lower the rate, the lower the cost for the company and (theoretically) the bigger the profit.

My fellow Foolish colleague, Bernd Struben, wrote about this in his article last week.

At the same time, Zip has drastically cut costs to get the business into shape. The result speaks for itself.

In FY24, the company became profitable on the bottom line. Not on an adjusted, underlying, or some other 'BS' basis of earnings, as the late, great Charlie Munger would call it. Nope, just a good old-fashioned net profit after tax (NPAT) of $5.66 million.

Given that inflation continues to move lower, suggesting more rate cuts to come, that bottom-line number might continue to sweeten.

Buy now, earn lat… now

A sweeter future is precisely what the team at Elvest Co. expect for Zip.

In their October monthly report, Elvest fund managers Adrian Ezquerro and Jonathan Wilson set the scene for greater times to come for the Zip share price.

Ezquerro and Wilson wrote:

The [September quarterly] result prompted consensus upgrades to FY25 forecasts, which in our view remain conservative.

According to current consensus data compiled by Commsec, Zip's earnings per share are estimated to be 7 cents per share in 2025 and 14 cents per share in 2026.

Based on the current share count, this would imply Zip could deliver $183.4 million in net profits in FY26. Such a result would give the company a forward price-to-earnings (P/E) ratio of 23 times FY26's forecast earnings.

That's not exactly an outlandish valuation relative to many other companies inside the top 200.