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The Beatdown in PayPal Stock Is an Overreaction

PayPal (PYPL) is a technology platform and app that enables digital and mobile payments. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)

For years, PayPal has been a pivotal part of the global shift towards app-based payments.

The onset of the COVID-19 pandemic only accelerated this shift, and both merchants and customers have increasingly turned to PayPal for convenient mobile payments.

However, investors have sold off PYPL stock in 2021.

Does the stock deserve this treatment on Wall Street? Let’s delve into the data and see if there’s actually a bargain here.

A Quick Look at PYPL Stock

PYPL stock started 2021 at $200, and it embarked upon a sharp rally early in the year. Interestingly, the stock hit the same resistance level of $305 twice – first in February and then again in July.

This means that cautious investors could consider taking profits, either partially or entirely, if PYPL stock returns to $305.

Starting in July, the stock started tanking. By mid-to-late November, it was trading near $190. Therefore, investors have a chance to buy PYPL stock at a price below where it was at the beginning of 2021.

Yet, we must investigate why the stock may have declined so sharply in recent weeks.

Showing Solid Growth

Given PayPal’s recently reported fiscal data, you’d think that PYPL stock should be much higher than it is today.

Consider the company’s total payment volume (TPV) for 2021’s third quarter. TPV is basically the lifeblood of a company in the payments niche, where PayPal operates.

In Q3, PayPal’s TPV reached $310 billion with 416 million active accounts. Compared to the $247 billion in TPV for Q3 of 2020, this represents an increase of 24% – not too shabby. Also, during 2021’s third quarter, PayPal generated net revenue of $6.18 billion, signifying a 13% year-over-year improvement.

PayPal President and CEO, Dan Schulman, celebrated a quarter that was truly outstanding for his company. “Our third-quarter results show solid growth on top of a record year,” Schulman commented.

A Thousand Cuts

Despite PayPal’s excellent financial performance, not everyone is bullish on PYPL stock. For example, Bernstein analyst Harshita Rawat, recently downgraded the stock from an outperform rating to market perform.

Rawat’s concerns about PayPal might help to clarify why investors have been selling PYPL stock lately. Apparently, Rawat is concerned about the “increasing aggregation” of e-commerce activity on other platforms. In other words, PayPal has competition.

To that, we can respond by observing the aforementioned growth in PayPal’s TPV and active accounts. Rawat believes that PayPal’s market-share gains could slow “by a thousand cuts.”

There will always be competition in the digital payments space. Yet, the data indicates that PayPal remains in growth mode.

Wall Street’s Take

Turning to Wall Street, PayPal has a Strong Buy consensus rating, based on 24 Buys, five Holds, and one Sell assigned in the past three months. The average PayPal price target is $276.04, implying 48.4% upside potential.

The Takeaway

Some investors, and even analysts, might be concerned about Paypal’s competition in the digital payments market. However, this has been a concern for quite a while, and Paypal has just kept on growing as a business.

So, after a share-price decline possibly based on an overreaction, PYPL stock looks like a bargain now.

Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.

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