Shares of fintech giant PayPal (PYPL) have endured quite a nasty slide since peaking out back in July 2021. It’s hard to believe that such an established large-cap tech name can plunge from over $300 to just under $100 in a matter of months.
As shares look to regain their footing, many wonder if the valuation reset is overdone, not bad enough, or in the right spot. I think PayPal is closer to fairly valued after its drastic 70% decline. As such, I remain neutral.
PayPal Stock: More Headwinds on the Horizon?
At 33 times trailing earnings, the innovative payments player isn’t exactly a cheap stock, especially after delivering weak guidance for 2022.
With revenues rising just 13.1% for the latest quarter, the recent round of analyst downgrades seems justified and the current multiple may still be too hot for the type of market environment we’re in.
Indeed, many investors would rather head to the exits on the first signs of slowed growth than give the firm the benefit of the doubt. With a rising risk of recession, there’s a real chance that payments could grind to a further slowdown. With the U.S. Federal Reserve battling against inflation, it hopes to engineer some sort of “soft landing.”
Whether the economy’s chin is strong enough to take the jab of around seven rate hikes without being knocked down remains to be seen.
Arguably, PayPal is one of the firms that could feel a considerable amount of pain if the Fed needs to dim the lights on the economy. On their own, higher rates are bad news for high-multiple growers like PayPal, but the potential negative impacts across the U.S. economy could act as another source of selling pressure moving forward.
In any case, I see the mild risk of recession and the increased pace of rate hikes as mostly being baked in. The major concern with PayPal is whether it can hold its own against rivals in the payments space.
Undoubtedly, PayPal’s SuperApp-like integration with its new BNPL (Buy Now Pay Later) Installments service and the embracement of cryptocurrencies, are signs that the firm is not asleep at the wheel. The company still appears on the right side of innovation within the fast-moving payments space.
For that reason, PayPal is an intriguing stock to watch, as it looks to navigate through a rough year. The real question is how PayPal will look to differentiate itself further from competitors in the digital payments space.
PayPal Has Many Growth Levers it Could Pull
Even if the latest quarter is more of a bump in the road rather than a start of a slowing of pace, I do think the company has many pathways it can go down to bolster its growth.
With the failed acquisition of Pinterest (PINS), questions linger as to where the company sees the puck going next in the fintech arena. It’s not a mystery that PayPal is looking to strengthen its presence in e-commerce payments as it matures from its eBay (EBAY) days. Could social commerce represent the next frontier of growth for the payments giant, or could the company explore other new angles to expand into? I think PayPal will hit the pause button with its social ambitions for now. At least until valuations have a chance to come down further.
Looking ahead, PayPal may wish to show off its crypto prowess to beckon users to its platform.
Earlier this year, the company confirmed its exploration of a potential stablecoin. Undoubtedly, a PayPal Coin made available through its platform could be one of the more trusted and most exciting cryptocurrencies to ever hit the market. If such a stablecoin launch is in the cards, PayPal stock could more than justify its hefty price-to-earnings times earnings multiple.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, PYPL stock comes in as a Moderate Buy. Out of 37 analyst ratings, there are 26 Buy and 10 Hold recommendations, and one Sell recommendation.
The average PayPal price target is $182.36, implying an upside of 60.3%. Analyst price targets range from a low of $107.00 per share to a high of $245.00 per share.
The Bottom Line
PayPal stock has suffered such a massive fall from grace that it’s easy to forget some of the more intriguing innovations going on behind the scenes.
While the company faces some tough times ahead, the longer-term fundamentals will eventually have a chance to shine through. For now, the stock seems appropriately valued.
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