PayPal (PYPL) operates a digital payments platform that provides an alternative to paper payment methods.
I am bullish on the stock. (See Insiders’ Hot Stocks on TipRanks)
Hedge Fund Buying
Hedge funds love volatility, and PayPal is 2.4 times as volatile as the Dow Jones. Considering the stock’s 27.5% return over the past 12 months, it’s also safe to say that the size of its upside moves exceeds those of its drawdowns.
According to TipRanks and the latest 13-F filings, hedge funds are incredibly optimistic about PayPal, and have added 483,900 shares to their portfolios in the last quarter.
A few notable managers to have added PayPal to their portfolios of late include Philippe Laffont, Ray Dalio, and Chase Coleman.
Key Drivers
Many may be astonished to find out that PayPal now holds a larger enterprise value than the likes of Goldman Sachs (GS), Bank of America (BAC), and Morgan Stanley (MS).
The emergence of peer-to-peer digital payments has allowed PayPal to bypass many of the big banks. Furthermore, forming key partnerships with merchants and depositary banking segments instead of opposing them has assisted PayPal tremendously.
Looking forward, PayPal should take advantage of the buy-now-pay-later craze through its PayLater platform. This could allow it to tap into a similar space as Square (SQ), another fintech firm whose enterprise value sits close to that of the big banks.
Pricing Metrics
PayPal is still primarily considered a growth stock, but there’s a fair argument that it will soon turn into a cyclical value stock.
The stock has improved on its year-over-year EPS by 88.1%, and increased its ROE by 65.2% during the same period. Combined, these two statistics tell us that earnings are growing strongly, relative to share issuances and deployed investor capital.
Analysts anticipate PayPal to have operating cash flows 62.7% above the sector average over the next year, and it’s also expected that PayPal’s 2021 EPS will show year-over-year growth of 21.6%, which could boost the stock price significantly.
Wall Street’s Take
Analysts think PYPL stock is a Strong Buy, based on 20 Buys, and three Holds assigned in the past three months. The average PayPal price target of $337.60 suggests 24.6% upside potential.
Concluding Thoughts
Hedge Funds are most likely buying PayPal stock due to the positively skewed volatility in store.
PayPal also has significant prospects supported by solid valuation metrics, which should encourage investors.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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