Does PayPal’s $1.69B UK Investment Signal a New Opportunity for Shares in 2025?

If you have been watching PayPal Holdings and debating your next move, you are not alone. The stock closed recently at $66.85, and there is plenty to unpack in both its recent performance and its long-term prospects. Over the past week, PayPal slipped by 1.2% and over the past month, it is down 3.4%. Year-to-date, the company has dropped a striking 22.4%, and it has lost 6.9% in the past year. Zoom out to the last five years and the decline is eye-catching, with shares off by 64.4%. Yet, despite these numbers, PayPal continues to pop up in major headlines that suggest both potential risk and opportunity.

Recent news includes a $1.69B investment from major U.S. financial firms into the UK, with PayPal involved as a key player. That hints at global ambitions and the company’s ongoing reach. On the flip side, we have seen hurdles as German banks temporarily blocked PayPal payments due to security concerns. These types of developments have contributed to the shifting perception of risk around the stock, which helps explain some of its volatility.

Despite all of that, when you look at pure valuation, PayPal scores a perfect 6 out of 6 on common measures of undervaluation. That is an unusually strong signal, and it sets up an intriguing case for a closer look. Next, let’s break down what actually goes into those valuation methods, and keep reading because there is an even clearer way to cut through the noise and find out what PayPal is really worth.

Why PayPal Holdings is lagging behind its peers

Approach 1: PayPal Holdings Excess Returns Analysis

The Excess Returns valuation model examines how much return PayPal generates above its cost of equity. This provides insight into whether the company is creating substantial value for shareholders with its investments. This approach goes beyond simple earnings by focusing on PayPal’s ability to leverage its equity to deliver profits that exceed what investors require as compensation for risk.

For PayPal, the key numbers are telling. The company’s Book Value sits at $21.04 per share, while its Stable Earnings Per Share (EPS) are estimated at $6.33, with figures sourced from future return on equity estimates provided by 11 analysts. The Cost of Equity is $2.01 per share, resulting in an Excess Return of $4.32 per share. On average, PayPal achieves a robust Return on Equity of 24.64%, which is notably strong for its sector. Looking further ahead, the Stable Book Value is projected at $25.70 per share, supported by 8 analysts’ weighted estimates.

Based on this methodology, the Excess Returns model calculates PayPal’s intrinsic value at $116.56 per share. With the current market price around $66.85, this implies the stock is trading at a 42.6% discount to intrinsic value, signaling meaningful undervaluation.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for PayPal Holdings.

Our Excess Returns analysis suggests PayPal Holdings is undervalued by 42.6%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: PayPal Holdings Price vs Earnings

The Price-to-Earnings (PE) ratio is a proven valuation tool for profitable companies like PayPal Holdings because it directly relates a company’s share price to its earnings. It helps investors understand how much the market is willing to pay for each dollar of profits generated, which is especially useful when assessing well-established businesses with consistent earnings.

However, what constitutes a “fair” PE ratio can vary depending on expectations for future growth and the risks unique to a particular company or industry. Firms with higher anticipated earnings growth or lower risk profiles usually command higher PE multiples, while those facing challenges or increased risk tend to trade at lower ratios.

Currently, PayPal trades at a PE ratio of 13.6x. This is noticeably lower than both the industry average PE of 16.7x and the peer average of 17.9x. This may suggest that the market is being cautious about its growth outlook or other risk factors. Simply Wall St’s proprietary Fair Ratio is designed to reflect not just industry and peer data but also PayPal’s growth outlook, profit margins, market cap, and risks. This Fair Ratio is calculated at 18.4x. The metric goes beyond broad averages to provide a more precise assessment tailored to PayPal’s specific circumstances, making it a more robust benchmark for valuation.

With PayPal’s actual PE ratio significantly below its Fair Ratio, the data points to the stock being undervalued on this measure.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your PayPal Holdings Narrative

Earlier, we mentioned that there is an even better way to understand valuation. Let’s introduce you to Narratives, an innovative tool that empowers you to go beyond numbers and add your perspective to the investment story.

A Narrative is a simple way to connect your view of a company’s future, such as your expectations for revenue growth, margins, or new product launches, with a financial forecast and a fair value estimate. In effect, you combine the "story" you believe in with the numbers, allowing your investment decisions to reflect both facts and your outlook.

On Simply Wall St’s Community page, Narratives are easy to create and access, making powerful analysis available to millions of investors. With these, you can quickly compare your fair value with the current market price and decide whether it might be time to buy or sell.

Even better, Narratives automatically update as new news and earnings are released, so your view stays current. For example, some PayPal investors are optimistic about margins and future innovations, estimating fair value near $190 per share, while others take a much more cautious view with targets as low as $62. This demonstrates just how dynamic and personal the Narrative approach can be.

Do you think there's more to the story for PayPal Holdings? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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