Growth stocks were battered in 2022 due to macro headwinds. While several growth stocks have advanced on improved investor sentiment this year, concerns about rising interest rates hurting their recovery remain. It will be better for investors to focus on stocks that have solid fundamentals and long-term growth potential. We used TipRanks Stock Comparison Tool to place Teladoc (NYSE:TDOC), Etsy (NASDAQ:ETSY), and PayPal (NASDAQ:PYPL) against each other to pick the growth stock that Wall Street expects to generate the highest returns.
Teladoc Health (NYSE:TDOC)
Virtual healthcare provider Teladoc gained immense visibility during the COVID-19 lockdowns. However, this growth stock lost investors’ interest last year due to concerns about its profitability and relevance in a post-pandemic backdrop.
Teladoc’s Q4 2022 revenue grew 15% to about $638 million and exceeded analysts’ expectations. However, the company’s GAAP loss per share widened significantly to $23.49 from $0.07 in the prior-year quarter due to goodwill impairment charges related to the company’s Livongo acquisition.
While the company might remain under pressure in 2023, it is optimistic about its long-term potential, backed by an extensive portfolio of products and services, especially the company’s mental health offering BetterHelp. Earlier this year, Teladoc announced layoffs and is taking other measures to right-size its cost structure to improve profitability.
Is Teladoc a Buy, Hold, or Sell?
Following the Q4 print, Credit Suisse analyst Jonathan Yong lowered his price target for Teladoc to $27 from $30 and maintained a Hold rating. The analyst feels that it is important for the company to improve top-line growth while maintaining profitability without the use of cost cuts, especially as advertising and marketing are vital for its BetterHelp business.
Overall, Teladoc scores a Moderate Buy consensus rating with six Buys and 13 Holds. At $30.41, the average TDOC stock price target implies nearly 19% upside potential. Shares have risen over 8% since the start of 2023.
Etsy (NASDAQ:ETSY)
Etsy, an online marketplace for unique and handmade goods, enjoyed phenomenal growth during the pandemic. However, the company’s growth rate was impacted by the slowdown in e-commerce following the reopening of the economy. Etsy’s revenue increased 10.2% in 2022 compared to 35% and 111% in 2021 and 2020, respectively.
Moreover, gross merchandise sales (GMS), which indicates the dollar value of merchandise sold on all Etsy marketplaces, declined 4% in Q4 2022 and 1.3% in the full-year 2022. While macro headwinds might continue to pose challenges for Etsy, the company is taking various initiatives to improve its profitability, deepen buyer engagement, drive new buyer acquisition, and reactivate lapsed buyers.
What is the Price Target for Etsy Stock?
Recently, Evercore ISI analyst Shweta Khajuria reduced her price target for Etsy stock to $140 from $153 but maintained a Buy rating. Khajuria slightly lowered her 2023 GMS and EBITDA expectations, bringing them “modestly below” the Street’s estimates. The analyst lowered her expectations based on intra-quarter data points and industry resources that indicate high-single-digit percentage e-commerce growth in 2023 and 2024.
While Khajuria retained a Buy rating on Etsy, she feels that the stock “could be range-bound in the near-term” due to the lack of any significant catalysts.
With 12 Buys, nine Holds, and one Sell, Etsy scores Wall Street’s Moderate Buy consensus rating. The average price target of $138.75 implies 28.2% upside potential. Shares have declined nearly 10% year-to-date.
PayPal (NASDAQ:PYPL)
Weak consumer spending due to macro pressures has hurt fintech giant PayPal’s performance over the recent quarters. Revenue grew 7% to $7.4 billion in Q4 2022, while total payment volume (TPV) increased 5% to $357.4 billion. Both the key metrics reflected a slowdown compared to revenue and TPV growth rate of 11% and 9%, respectively, in Q3 2022.
However, adjusted EPS increased about 12% to $1.24 in Q4 2022, supported by the company’s cost discipline. The company stated that it exited 2022 with a run rate ahead of its target cost savings of $1.3 billion in 2023. Further, the company has identified opportunities to generate an additional $600 million in cost savings.
Overall, PayPal expects its 2023 adjusted EPS to rise about 18% to $4.87, helped by higher revenue, its efforts to reduce costs, and share repurchases. It is worth noting that PayPal plans to allocate 75% of its 2023 expected free cash flow of $5 billion to share repurchases.
Is PayPal a Buy or Sell?
Earlier this month, Oppenheimer analyst Dominick Gabriele reiterated a Buy rating on PayPal and a price target of $90. Gabriele acknowledged that the stock is not a “safety trade” if the correction in the stock market or payment stocks persists.
Nonetheless, his analysis suggests that “PYPL still resides in fast-growing swim lanes (Ecom) and geographic regions that suggest a ~15% EPS LT [long-term] compounder even with 1–2% market share pressure and ~3bps per year take rate pressure.”
Wall Street’s Moderate Buy consensus rating for PayPal is based on 17 Buys, nine Holds, and one Sell. The average PYPL stock price target of $113.45 suggests 50.7% upside potential. PYPL shares have risen nearly 6% year-to-date.
Conclusion
Rising interest rates to tame stubborn inflation might impact growth stocks over the near term. Wall Street is cautiously optimistic about Teladoc, Etsy, and PayPal. Nevertheless, analysts see higher upside potential in PayPal stock compared to Teladoc and Etsy. As per TipRanks’ Smart Score System, PayPal scores eight out of 10, which indicates that the stock could outperform the broader market over the long term.
