PayPal (PYPL) only hit the market as an independent spinout from eBay (EBAY) in July, so its trading history so far has been overshadowed by Wall Street’s macro mood swings. Now that earnings are out of the way and the index fund managers are paying attention, it makes for an interesting trade.
PYPL was always the diamond centerpiece of the EBAY proposition, which is why activist investors fought so hard to get the company cut out of what now looks like a moldering setting. Most of the real growth in the old company came from the online payments business, and PYPL now has free reign to expand even into areas where its old corporate affiliation would have held it back.
Last quarter’s number reveal that PYPL added a healthy 16 million active accounts over the summer, boosting its overall user base and transaction volumes 10% year over year. Revenue is climbing at a 15% rate — only a fraction under what used to be consensus — and guidance has been comfortable enough to start pushing the 2016 earnings models upward. Right now, PYPL is trading around 25X forward targets, which is roughly in the range of implied growth. With growth expectations rising on the profit side, that’s not a bad score.
For trading purposes, PYPL really gets interesting. As you can see on the chart below, the stock is on a long and relatively gentle upswing, recovering about 5% per week from its correction low with a pullback last week. And…the stock will join the Nasdaq 100 this Wednesday, Nov. 11, which is going to force institutional traders to take this stock more seriously than they took EBAY.
PYPL is well above its 50-day average (currently $34.18) and sits just below its 9-day average, which it has stayed mostly above since early October. The relative strength index (RSI, at the top of the chart) shows the stock is strong but not overextended. The post-split peak of $42.55 gives us an idea of where this stock can trade when the market tides aren’t getting in its way, and it doesn’t require any kind of record-breaking upside to get there.
I like the company. I like the stock’s current strength, and I like that it has an upcoming catalyst when it joins the Nasdaq 100 this week.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
