Do PayPal Holdings's (NASDAQ:PYPL) Earnings Warrant Your Attention?

By
Simply Wall St
Published
November 21, 2021
NasdaqGS:PYPL
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in PayPal Holdings (NASDAQ:PYPL). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for PayPal Holdings

How Fast Is PayPal Holdings Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. Impressively, PayPal Holdings has grown EPS by 34% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note PayPal Holdings's EBIT margins were flat over the last year, revenue grew by a solid 21% to US$25b. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NasdaqGS:PYPL Earnings and Revenue History November 22nd 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for PayPal Holdings?

Are PayPal Holdings Insiders Aligned With All Shareholders?

Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

While we did see insider selling of PayPal Holdings stock in the last year, one single insider spent plenty more buying. Specifically the Independent Chairman of the Board, John Donahoe, spent US$2.0m, paying about US$204 per share. To me, that's probably a sign of conviction.

Along with the insider buying, another encouraging sign for PayPal Holdings is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth US$180m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Is PayPal Holdings Worth Keeping An Eye On?

You can't deny that PayPal Holdings has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. Still, you should learn about the 3 warning signs we've spotted with PayPal Holdings .

The good news is that PayPal Holdings is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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