Is It Time To Consider Buying PayPal Holdings, Inc. (NASDAQ:PYPL)?

By
Simply Wall St
Published
February 21, 2022
NasdaqGS:PYPL
Source: Shutterstock

Today we're going to take a look at the well-established PayPal Holdings, Inc. (NASDAQ:PYPL). The company's stock received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$216 at one point, and dropping to the lows of US$104. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether PayPal Holdings' current trading price of US$104 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at PayPal Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for PayPal Holdings

What is PayPal Holdings worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 28.96x is currently trading slightly below its industry peers’ ratio of 29.83x, which means if you buy PayPal Holdings today, you’d be paying a decent price for it. And if you believe that PayPal Holdings should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since PayPal Holdings’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from PayPal Holdings?

earnings-and-revenue-growth
NasdaqGS:PYPL Earnings and Revenue Growth February 21st 2022

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. PayPal Holdings' earnings over the next few years are expected to increase by 41%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in PYPL’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at PYPL? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on PYPL, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for PYPL, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - PayPal Holdings has 1 warning sign we think you should be aware of.

If you are no longer interested in PayPal Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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