HomeMost PopularPayPal: A Bullish Case Backed by Wall Street

PayPal: A Bullish Case Backed by Wall Street

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The Booming Potential of PayPal

When it comes to Wall Street ratings, investors are often wary due to their near-term focus, herd mentality, and bullish bias. However, in the case of PayPal (NASDAQ:PYPL), Wall Street’s bullish stance appears to be well-founded. The numbers speak for themselves – 47 Seeking Alpha authors have written about PayPal in the past 30 days, with 31 rating the stock as either BUY or STRONG BUY. Wall Street goes even further, with an average rating of 4.13 compared to 3.95 from Seeking Alpha authors.

The Fundamental Catalysts and Valuation

Let’s delve into why Wall Street’s enthusiasm for PayPal is justified. One of the key driving forces behind PayPal’s positive outlook is the combination of fundamental catalysts and its cheap valuation. In the near term, PayPal benefits from new leadership, ongoing cost-saving initiatives, and ventures into emerging areas like Venmo and cryptocurrency offerings. Long term, the company’s strong brand recognition, robust return on capital employed, and capital allocation flexibility contribute to its growth and wide moat.

Near-Term Catalysts for PayPal

Currently, PayPal’s stock is trading at around $58 per share with a forward price-to-earnings ratio of approximately 11.8x. Several catalysts are likely to push the stock price higher in the near term. Firstly, the appointment of the new CEO, Alex Chriss, brings relief to investors who were concerned about leadership uncertainties. Chriss, with his deep understanding of technology’s role in the payment world, is expected to revitalize PayPal’s offerings. Additionally, ongoing cost-saving initiatives and capital allocation plans will contribute to earnings recovery and growth. Moreover, PayPal’s initiatives, such as “Buy Now, Pay Later,” Venmo’s expanded availability, and forays into cryptocurrencies, offer new growth avenues to leverage its strong brand recognition and global reach.

Long-Term Prospects for PayPal

PayPal’s long-term growth potential is exceptional, with an entry price-to-earnings ratio of around 12x. The interplay between profitability and reinvestment rate dictates a business’s long-term earning power growth. PayPal’s return on capital employed (ROCE) has consistently outperformed the broader economy, averaging 57.8% in recent years. Furthermore, the company’s capital allocation flexibility is underscored by its debt-free status, interest coverage ratio of 64x (compared to the economy’s average of around 6x), and CAPEX-light business model. With a conservative estimate, a 10% growth reinvestment rate complements the impressive ROCE, resulting in a sustainable organic growth rate of approximately 5.8%. Consensus estimates even project double-digit growth rates.

Risks and Final Thoughts

While there are risks associated with macroeconomic and geopolitical uncertainties, as well as operational challenges affecting PayPal’s quarterly financial results, the positives outweigh the negatives. The stock is well-positioned to benefit from various catalysts in the near term while maintaining strong long-term growth potential due to its low valuation, excellent ROCE, and growth prospects. In conclusion, PayPal offers favorable odds for investors, both in the short and long term.

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