HomeMost PopularPayPal: Is It Really at a 6-Year Low?

PayPal: Is It Really at a 6-Year Low?

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Investment Thesis: PayPal Faces Challenges in an Evolving Market

The outlook for PayPal Holdings, Inc. (NASDAQ:PYPL) stock is less than exciting. As the company operates in a fiercely competitive landscape, with rivals encroaching from all sides, investors may be wondering if PayPal can withstand the pressure.

While some may argue that PayPal’s stock looks attractive, likening it to a tightly wound coil ready to spring, this type of thinking can be misleading. Investing in a stock that appears poised for a sudden jump is an ill-advised approach. The best investment opportunities often arise when others are selling and expectations are low, requiring patience and strategic thinking.

So, what is the opportunity with PayPal? Let’s dive in and explore why buying the stock at 10x next year’s earnings per share (EPS) could be an attractive choice.

PayPal: Have All the Bad News Been Factored In?

It’s astonishing to see how PayPal’s stock has fallen to nearly a six-year low. Looking back, we can pinpoint some missteps the company made in recent years, particularly over-promising on guidance and under-delivering. However, dwelling on past mistakes won’t help us move forward.

Where Does PayPal’s Revenue Growth Stand Against Competitors?

PayPal’s revenue growth has reached maturity, and it competes with various other payment processing solutions, such as the highly customizable Stripe known for its developer-friendly API, the international-focused Adyen tailored for large enterprises, and Block’s (SQ) Square merchant ecosystem with a focus on in-person transactions.

The sentiment towards these competing companies is similar, with too many players in an increasingly commoditized market. The market seems to believe that competition boils down to pricing.

However, we must recognize that PayPal has a robust pricing structure that allows it to maintain a strong position without resorting to drastic price increases to drive revenue growth. By remaining competitively priced, PayPal can reduce its marketing and operational expenses, bolstering profitability.

What sets PayPal apart is its massive scale, providing choices to consumers while enhancing its checkout service. Instead of getting caught up in the intricacies of the fintech world, let’s focus on the fact that PayPal’s stock is already priced at just 9x next year’s EPS.

Investor Opportunity: PayPal’s Low Valuation

I firmly believe that despite the unappetizing outlook painted for PayPal, there is a compelling opportunity for investors.

PayPal’s stock currently trades near a 6-year low, predominantly due to past missteps. However, it’s important to look beyond the past and consider the company’s future potential.

While PayPal faces competition and uncertainty, it is still positioned to deliver substantial returns. At just 9x next year’s EPS, PayPal’s valuation doesn’t reflect its true capabilities, making it an attractive opportunity even in the face of market skepticism.

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