PayPal’s Resurgence: A Smart Investment for the Long Haul?
After a rocky start to 2024, PayPal’s stock has made a remarkable comeback, surging 42% in the last six months. This impressive gain has brought the company’s year-to-date return to 39%, outpacing the broader S&P 500. Despite this, shares still linger 72% below their peak price. Long-term investors may be wondering if it’s wise to initiate a position in PayPal.
A Turning Point in Q2
The fintech giant’s fortunes began to shift when it reported its Q2 2024 financial results. The company posted double-digit growth in total payment volume (TPV), accompanied by an expanding operating margin driven by effective expense controls. Management also raised full-year guidance for adjusted profit. This positive momentum was briefly disrupted by weaker-than-expected revenue in Q3, but the market has since shrugged off these mixed results.
Market Sentiment Shifts
Improving market sentiment has played a crucial role in PayPal’s resurgence. The stock’s 42% gain in six months can be attributed, in part, to a 35% expansion of its price-to-earnings (P/E) ratio during the same period. This shift in sentiment may be driven by a combination of PayPal’s solid financials, improving macro conditions, and the possibility of easing regulations.
A Solid Foundation
Despite its recent volatility, PayPal’s business remains on solid ground. Key metrics indicate the health of its operations, with TPV increasing 9% year over year to $422.6 billion in Q3. This figure represents a 136% jump from pre-pandemic Q3 2019. CEO Alex Chriss has focused on creating a more efficient organization, with operating expenses rising only 3% in Q3, well below the 6% gain in net revenue.
Financial Strength
PayPal’s financial position is robust, with $16.2 billion in cash, cash equivalents, and investments on its balance sheet, compared to $12.4 billion in debt. The company generated $4.2 billion in free cash flow in 2023 and expects to reach $6 billion this year.
A Reasonable Valuation
With shares trading at a P/E ratio of 20.5, PayPal’s valuation is reasonable, particularly when compared to its historical average multiple of nearly 45. While the stock may not be as attractive as it was earlier in the year, its potential for steady revenue and earnings growth, coupled with the possibility of valuation expansion, make it an attractive option for long-term investors.
Expert Insights
Our analyst team has identified PayPal as one of the top 10 stocks to buy right now, alongside nine other overlooked opportunities. With a total average return of 901% compared to the S&P 500’s 173%, it’s worth considering their expert advice.
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