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PayPal Stock: Lengthy Growth Runway
Stock Analysis & Ideas

PayPal Stock: Lengthy Growth Runway

I am bullish on PayPal (PYPL) as it has a strong competitive position within the financial technology industry, a lengthy growth runway, and substantial upside potential relative to its average price target.

PayPal is a digital payments platform that lets its customers send and receive the payments they make on different platforms. Its solutions to its customers are PayPal credit, PayPal, iZettle, Venmo, Braintree, Hyperwallet, and Xoom. 

It was founded in 1998 and has its headquarters in San Jose, California. Inherently, PayPal has a two-sided network that links customers worldwide. Merchants can connect with customers, while customers can pay for their purchases through PayPal or transfer or withdraw money. Moreover, PayPal offers customers P2P solutions through its website, Xoom, and Venmo.

Strengths

PayPal provides its services in approximately 200 countries across the globe. This gives it access to a diverse customer base and around 305 million active users worldwide. 

It has since accumulated a large customer base because of the variety of services like Billmelater, Digital Goods, PayPal here, online invoicing, and virtual terminal. Another noticeable strength of the company is its strong technology background. 

Back in 2002, when eBay acquired PayPal, the first thing the company did was make the payment processing system more secure. Since the platform is incredibly convenient and secure for the mass market, PayPal is here to stay.

Recent Results

In the third quarter of 2021, PayPal partnered up with Amazon in the U.S. to pay through Venmo at checkout. This will let customers purchase items on Amazon with their Venmo accounts. 

However, compared to $6.33 billion revenue in July at the end of the second quarter, PayPal reported $6.23 billion in the quarter that ended in November 2021. 

Earnings per share also dropped slightly from $1.15 to $1.11. Moreover, PayPal also reported that as of 2021, 75% of global retailers are relying on its digital wallet since it has become the most widely used payment processing channel in the world.

Valuation Metrics

PYPL stock looks reasonably valued at the moment. Its EV/EBITDA ratio is slightly elevated relative to its history at 28.2 times compared to its historical average of 26.5 times. 

Furthermore, its price-to-normalized earnings ratio is 38.6 times compared to its historic average of 38.6 times. Analysts expect the company to see revenue, EBITDA, and normalized earnings-per-share growth in 2022 in the range of 14.8% to 18.9%.

Wall Street’s Take

According to Wall Street analysts, PYPL earns a Strong Buy analyst consensus based on 26 Buy ratings, six Hold Ratings and one Sell rating in the past three months. 

Additionally, the average Paypal price target of $260.94 puts the upside potential at 40.3%.

Summary and Conclusions

PayPal is a major player in the fintech space. It has a long track record of generating outsized growth and capturing market share, and continues to pursue multiple avenues of innovation to continue to fuel its growth. 

The stock price looks quite reasonable right now relative to historical valuation multiples, and analysts expect the company to generate healthy growth.

On top of that, Wall Street is overwhelmingly bullish on the stock and the average price target implies substantial upside over the next year.

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