Down nearly 70% in the past year, can PayPal’s (NASDAQ:PYPL) stock recover?
Technology stocks have been crushed this year as investors stampede out of the asset class and head for safe havens ranging from consumer staple stocks to bonds and gold. And among technology stocks, shares of financial technology (fintech) companies have been singled out for special abuse. Not only is PYPL stock down 55% year-to-date, but so, too, are shares of other leading fintech companies, such as Block (NYSE:SQ), SoFi (NASDAQ:SOFI) and Affirm (NASDAQ:AFRM). The carnage has been so bad and unrelenting that it begs the question: Can PayPal rise from the smoldering wreckage of the current selloff, or is its stock destined to languish for an extended period?
|PYPL||PayPal Holdings, Inc.||$84.69|
While PYPL stock has been hurt by sour sentiment among investors and the general downturn in markets, those are not the only problems afflicting the San Jose, California-based company. PayPal’s share price has also been brought lower by growing concerns over rising competition in the payment processing software space. While PayPal continues to hold a 50% global market share, the company is facing stiff competition from tech giants such as Amazon (NASDAQ:AMZN), as well as upstarts such as Shopify (NYSE:SHOP), and, increasingly, from mainstream banks and other commercial lenders, all of whom are targeting the small and medium-sized businesses that have been PayPal’s core customer base.
Amazon recently extended its Prime shopping benefits to third-party websites, a move that puts the e-commerce behemoth more directly in competition with PayPal than ever before. Amazon has made no secret of the fact that it is targeting the small merchants that have been PayPal’s bread and butter. In addition to competitive threats, PayPal also faces the prospect of the global economy tipping into a recession in the second half of this year and into 2023. A recession would lead to a pullback in consumer spending. That would hurt payment volumes and account growth at PayPal.
These issues have been consistently highlighted by analysts and are weighing on PYPL stock.
Growth and Valuation
While PayPal continues to face a number of near-term headwinds, the company still has a compelling long-term story. In addition to its market leading position, PayPal doubled its merchant accounts from 2020 to 2021 during the pandemic. Additionally, the company has forecast more than $5 billion in free cash flow and guided for total payment volume to exceed $1.4 trillion this year. The company also continues to successfully grow and monetize its consumer-focused digital wallet Venmo. Venmo enables credit card payments, in-store QR code payments, and purchases using various cryptocurrencies.
Another reason to consider an investment in PayPal right now is the company’s valuation. The sharp decline in PYPL stock over the past 12-months has brought the company’s valuation down to its lowest level since PayPal went public back in 2015. PayPal’s price-to-earnings ratio now sits at 27.93, which is close to McDonald’s (NYSE:MCD). The company’s stock is also trading at 3.2 times forward sales, the bottom of its historical range. Plus, management continues to aggressively buyback PayPal’s stock, repurchasing $3.4 billion worth of shares last year. And, at $80, PayPal’s stock is trading at its lowest level since 2018.
Among 42 analysts who cover PYPL stock, the median price target on the share price is currently $116.50, implying 37% upside from current levels.
Buy PYPL Stock for Long-Term Growth
PayPal is not without risks. The company’s share price may have further to fall in the near-term.
But the company continues to dominate the online payment space and is likely to remain competitive long-term. And right now, PayPal’s stock is on sale and at its lowest valuation ever, presenting a great opportunity for investors who are willing to hold onto the shares long-term and tolerate any short-term pain. The bottom line is that PayPal is a solid technology stock that is deeply discounted right now. For this reason, PYPL stock is a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.