PayPal Shares Slide After German Banks Block Payments Is There Still Value Ahead

If you are eyeing PayPal Holdings and wondering if now is the time to act, you are not alone. The rollercoaster ride in PayPal’s stock price over the past few months has more than a few investors asking if the company’s best days are behind it, or if a turnaround might actually be just around the corner. After closing recently at $69.15, the shares have lost 7.3% over the last week, which follows on the heels of mild 3.4% gains over the previous 30 days. Year to date, the picture looks rougher with a decline of 19.8%, and the drop is even more pronounced over the past five years at a stunning 65.8% decrease.

It is not all gloom, though. Some recent headline news has added both intrigue and fresh risks to the equation. For instance, PayPal was among major U.S. financial firms announcing a $1.69 billion investment into the U.K., a move that could unlock new growth opportunities. On the other hand, operational hiccups like German banks blocking PayPal payments due to security concerns highlight ongoing challenges in the payments landscape.

So, is PayPal undervalued, or is the market seeing something you are not? Here is a clue: by our count, the company scores a strong 5 out of 6 on the standard value checks, flagging significant potential for patient investors. In the sections ahead, we will dig into exactly how that analysis works, breaking down the traditional valuation approaches so you can see where PayPal stands. Be sure to keep an eye out, because we will wrap up with a perspective that could give you an even clearer view of the company’s true worth.

Why PayPal Holdings is lagging behind its peers

Approach 1: PayPal Holdings Excess Returns Analysis

The Excess Returns model focuses on measuring how much profit a company generates above the required return for its shareholders. Put simply, it looks at how efficiently PayPal transforms its invested capital into shareholder value and how sustainable this advantage is likely to be.

For PayPal, the key numbers are strong. The company’s book value stands at $21.04 per share, while its stable earnings per share are estimated at $6.33, based on weighted projections from 11 analysts. With a cost of equity at $1.99 per share and an average return on equity of 24.64%, PayPal currently delivers excess returns of $4.34 per share. Long-term projections also indicate a stable book value rising to $25.70 per share, backed by data from eight analyst forecasts.

According to this approach, the intrinsic value of PayPal is estimated at $118.52 per share. Compared to its recent closing price of $69.15, this implies the share is about 41.7% undervalued by the market. This suggests a considerable margin of safety based on the company’s ability to generate returns well above its cost of capital.

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 41.7%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: PayPal Holdings Price vs Earnings

For established, consistently profitable companies like PayPal Holdings, the Price-to-Earnings (PE) ratio is a widely used valuation metric. It gives investors a straightforward way to compare how much they are paying for each dollar of current earnings, which is especially helpful for mature businesses with stable profits.

However, a “normal” or “fair” PE ratio will depend on factors like growth prospects and perceived risks. Companies expected to grow faster or with lower risk typically deserve a higher PE, while those facing uncertainties or slower growth trade at lower multiples.

PayPal is currently trading at a PE ratio of 14.1x. This sits below the industry average of 16.0x and is also under the peer average of 17.3x. Instead of relying solely on these broad benchmarks, Simply Wall St calculates a “Fair Ratio” for each stock by factoring in unique elements such as future earnings growth, profit margins, industry segment, market capitalization, and company-specific risks. For PayPal, the Fair Ratio is estimated to be 18.8x. This suggests investors would typically expect a higher multiple based on these tailored factors, making it a more refined benchmark than generic industry averages.

Comparing PayPal’s actual PE multiple of 14.1x to its Fair Ratio of 18.8x suggests a significant undervaluation, indicating the market may be underestimating PayPal’s true potential given its financials and outlook.

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 there is an even better way to understand valuation, so let us introduce you to Narratives, a dynamic, user-friendly approach to investing that goes beyond the numbers.

A Narrative is simply your investment story: you define the fair value, future revenue, earnings, and margins you expect for a company like PayPal Holdings, linking the company’s business story directly to a financial forecast and a personal estimate of fair value.

Through Narratives on Simply Wall St’s Community page, you can easily track your own expectations, view millions of other investors’ perspectives, and see the rationale behind different valuations in a transparent and accessible way. All updates occur automatically as new news or earnings emerge.

This method empowers you to compare your calculated fair value with PayPal’s current share price to make buy or sell decisions with greater clarity, all while remaining responsive to new developments that could shift your outlook.

For example, one investor might foresee strong PayPal growth driven by innovative merchant solutions and assign a fair value of $111 per share. Another, more cautious investor might see future margin pressure and estimate fair value at just $62. This showcases how Narratives help you navigate diverse viewpoints and decide what you believe.

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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