Has the Market Overlooked PayPal After AI Initiatives and Recent 2.9% Rebound?

• Wondering if PayPal Holdings could be the value play your portfolio needs? Let’s take a closer look at whether the market is missing something, or if the current stock price accurately reflects its position.
• After some volatility, the stock climbed 2.9% in the last week. However, it is still down 12.0% over the past month and 28.4% in the last year. These sharp swings raise questions about perceived risks and opportunities.
• Recently, news about PayPal’s push to streamline its business and introduce advanced AI-driven solutions has attracted attention. This has fueled debate over the company’s ability to recapture growth. Major product updates and continued moves into digital payments continue to sustain investor interest, even as the wider fintech sector faces pressure.
• When it comes to valuation, PayPal scores 5 out of 6 on our valuation checks, suggesting it is undervalued in most key metrics. The article discusses why that score matters, how the valuation is calculated, and explains an even better way to use these insights at the end of the article.

Find out why PayPal Holdings's -28.4% return over the last year is lagging behind its peers.

Approach 1: PayPal Holdings Excess Returns Analysis

The Excess Returns valuation model examines how much value a company generates above its cost of equity. In simple terms, it measures PayPal Holdings's ability to turn invested capital into profits that exceed shareholder expectations, focusing on long-term sustainable returns rather than short-term market moves or headline earnings.

Key valuation metrics for PayPal include a Book Value of $21.46 per share and a Stable Earnings Per Share (EPS) of $6.20, based on forward-looking estimates from 10 analysts. The Cost of Equity stands at $1.97 per share, resulting in an Excess Return of $4.23 per share. Over the long run, PayPal is expected to maintain an average Return on Equity of 24.41%, with the Stable Book Value projected to rise to $25.40 per share, using consensus figures from eight analyst forecasts.

Based on these inputs, the Excess Returns model estimates PayPal's intrinsic value at $119.83 per share. This suggests the stock is currently 48.4% undervalued compared to recent trading levels, which may indicate that the market is underestimating the business's long-term earnings potential relative to its capital base.

Result: UNDERVALUED

Our Excess Returns analysis suggests PayPal Holdings is undervalued by 48.4%. Track this in your watchlist or portfolio, or discover 926 more undervalued stocks based on cash flows.

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

Approach 2: PayPal Holdings Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies like PayPal Holdings, as it directly relates a company's market price to its earnings per share. This makes it a simple snapshot of how much investors are willing to pay today for future profit streams.

The "right" or fair PE ratio for any stock depends on growth expectations and risk. High-growth companies or those with lower perceived risks usually command higher PE ratios, as markets anticipate larger future profits. Conversely, companies facing slowdowns or greater uncertainty tend to trade at lower multiples.

Currently, PayPal trades at a PE ratio of 11.77x. This is noticeably below both its industry average of 13.61x and the peer group average of 58.12x. While comparing PE ratios provides useful context, it does not account for company-specific factors like margin, scale, or anticipated earnings growth.

That is where Simply Wall St’s "Fair Ratio" comes in. The Fair Ratio, calculated at 17.44x for PayPal, considers not only its sector and size but also unique factors like forecast earnings growth, profit margin, risk profile, and market capitalization. By integrating these details, it provides a more precise valuation benchmark than simple peer or sector averages.

With PayPal’s actual PE at 11.77x versus a Fair Ratio of 17.44x, the shares appear substantially undervalued according to this approach. This gap reflects the potential for upside if the company meets or exceeds forecast expectations.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1433 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your PayPal Holdings Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives, a more powerful and dynamic approach available on Simply Wall St’s Community page and used by millions of investors.

A Narrative is not just a number. It’s your investment story built around personal assumptions about PayPal Holdings: your views about future revenues, earnings, margins, and fair value, combined with the specific business and industry trends you believe will shape the company’s future.

By crafting a Narrative, you anchor your outlook to a financial forecast and translate that directly into a fair value. This can then be instantly compared to the current market price to help you decide whether to buy, hold, or sell.

Narratives are easy and accessible for any investor, and they update automatically whenever new information, such as earnings results or breaking news, comes out, so you always stay informed with the latest view.

For example, some investors see PayPal’s fair value reaching $133.95 based on optimistic growth, while others use more cautious estimates, arriving at values as low as $82.22. Each reflects a different Narrative about PayPal’s prospects and risk.

Do you think there's more to the story for PayPal Holdings? Head over to our Community to see what others are saying!

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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