PayPal (NASDAQ:PYPL) Remains a Growth Story in Face of Rising Competition

August 10, 2021
  •  Updated
November 27, 2022
Source: Shutterstock

PayPal Holdings, Inc. ( NASDAQ:PYPL ) is one of the companies that quickly reversed the 2020 downturn, tripling up within a year, to reach the impressive US$322b valuation.

Yet, the stock is looking a bit expensive at a price-to-earnings (P/E) ratio of 66. As it pays no dividend, the premise relies on the strong growth trend continuing in the future.

The most recent earnings report performed in consensus:

  • Revenue: US$6.2b, growth 18.6% y/y
  • EPS: US$1.15, growth 7% y/y
  • Q3 guidance: US$6.15b to US$6.25b (consensus US$6.45b)
  • Q3 EPS: US$1.07 (estimate US$1.14)

The market certainly didn't like the softer Q3 guidance as the stock dropped 10% since the earnings.

The rising competition didn't help the cause either after Square announced an agreement to buy Afterpay . With a US$29b acquisition, Square is entering the lucrative „buy now pay later“ segment, integrating it into an existing platform.

Meanwhile, Paypal is expanding in the crypto market, introducing Cash Back to Crypto . This feature allows Venmo credit cardholders to purchase cryptocurrencies by using the earned cashback automatically. A few weeks back, PayPal raised cryptocurrency purchase limit s for U.S customers to US$100k per week.

View our latest analysis for PayPal Holdings

Is PayPal Holdings still cheap?

The stock seems fairly valued at the moment, according to our valuation model. It's trading around 17.27% above our intrinsic value, which means if you buy PayPal Holdings today, you'd be paying a relatively reasonable price for it. And if you believe the company's actual value is $233.97, there's only a minor downside when the price falls to its real value.Although, there may be an opportunity to buy in the future. This is because the beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market.

If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a buying opportunity.

Can we expect growth from PayPal Holdings?

NasdaqGS:PYPL Earnings and Revenue Growth August 11th, 2021

Investors looking for growth in their portfolio may want to consider a company's prospects before buying its shares. Buying a great company with a robust outlook at a low price is always a good investment, so let's also look at the company's future expectations.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.

NasdaqGS: PYPL User Growth 2010-2021; Source: STATISTA

Yet, with the user growth that seems to be only accelerating, those numbers indeed remain a possibility.

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 their fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you've been keeping tabs on PYPL, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it's worth further examining other factors such as the strength of its balance sheet to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that PayPal Holdings has 2 warning signs , and it would be unwise to ignore them.

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 high growth potential.

Valuation is complex, but we're helping make it simple.

Find out whether PayPal Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article 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.