The market treats PayPal unfairly
Some stocks have been worse than others in the past few months. PayPal Collectibles (PYPL -3.77% )Among all of that, he’s really had to bear the brunt of the stock market chaos lately. News of interest rate hikes to quell rising inflation and geopolitical concerns regarding Russia and Ukraine sparked negative sentiment around growth stocks, particularly companies in the technology sector.
The market is behaving particularly irrationally towards PayPal – the fintech juggernaut saw its share price drop more than 8% in a single trading day on April 20. Similarly, the company’s stock has fallen more than 60% in the past six months, which is very worrying given the Standard & Poor’s 500 It fell only 3% over the same period. With the stock well under $100 per share, long-term investors should think twice before giving up PayPal today. It’s time to ignore the noise and focus on the basics.
What’s going on with PayPal?
In addition to fighting macroeconomic headwinds and geopolitical uncertainty, PayPal released a subpar forecast on its earnings conference call to end 2021. Management expects revenue to grow just 6% year-over-year in the first quarter of 2022, to $6.4 billion. It also expects a 29% decline in earnings compared to the same quarter last year, which equates to $0.87 earnings per share. For the whole of 2022, management anticipates challenges related to its replacement ebay (ebay -2.92% ) At a cost of up to 600 million dollars in revenue. eBay, which split from PayPal in 2015, is moving to its own payment platform.
But let’s not overreact
There is no doubt that management’s expectations are less than ideal, but investors should not panic. Management still expects its top streak to grow 15% to 17% in 2022, and Total Payments Volume (TPV) is expected to expand more than 20% to about $1.5 trillion. Given PayPal’s sheer size, investors should be very happy with this level of growth.
It also looks like eBay’s woes won’t last much longer — PayPal CEO Dan Schulman said the company plans to stop tweaking eBay in the second half of 2022. Investors should be thrilled with this news, as eBay’s revenue growth has been higher than 20% down. It’s easy to assume PayPal’s basics are underwater given that the company’s stock has recently lost more than half its value. But when you read between the lines, you’ll notice that PayPal is still in really good shape, especially in the long run.
Let’s not lose sight of PayPal’s balance sheet and cash flow generation, too. The company gives the company $16.3 billion in cash and investments, flexibility in future stock buybacks and business-boosting acquisitions. PayPal also has a debt-to-equity ratio of just 45%, with no leverage indicating that PayPal is ready for any economic situation. Cash is king, right? Well, PayPal dominates that area as well — the company grew free cash flow and cash from operations 38% and 31% year over year in the fourth quarter, to $1.6 billion and $1.8 billion, respectively.
I will gladly pay for this stock
PayPal is trading today’s deal. The company has a price-to-earnings multiplier of 24, which is less than half its average five-year multiplier of 54. PayPal is also trading at steep price cuts for its industry peers. Visa And Master Card Credit Cardwhich holds price-to-earnings multiples of 35 and 41 for the time being, respectively.
Analysts expect 2023 earnings per share of $5.76, which means the fintech giant’s shares are trading at just 16 times expected earnings that year. The patch has gone too far with PayPal – this stock is cheap, and it’s hard to argue otherwise.
Sit back and watch this company recover
Skilled investors should view the negative sentiment currently surrounding PayPal stocks as a buy signal. As cash giving away is gaining momentum, PayPal’s wide range of payment services will likely increase in demand. The company’s fundamental long-term outlook remains largely unchanged despite what the recent drop in its share price might suggest. And now the PayPal rating looks more attractive than ever. It’s time to add this fintech stock to your portfolio and watch your money grow in the years to come.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.