If you’re looking for growth this holiday season, look no further than PayPal Holdings Inc (NASDAQ:PYPL).
During the third quarter, the S&P 500 overall finally got back to growth. The blended earnings growth rate was 3.2% and represented the first increase since the beginning of last year. That growth came on slightly smaller sales growth: 2.7%, which was the first expansion since the end of 2014.
While it’s nice that more companies are again growing earnings, and with some organic winds at their back, a company like PayPal has been expanding consistently for some time.
PYPL stock was expanding rapidly before eBay Inc (NASDAQ:EBAY) bought it, expanded while eBay owned it and continues to grow now that it’s standing on its own on Wall Street.
PYPL Stock Still Charged Up
That hasn’t always been reflected in PayPal stock’s performance, though. In fact, a recent sell-off makes PYPL stock quite a steal at current levels. 2016 has been a rollercoaster of a year — since the spin-off, PayPal stock has posted about 10% gains overall. That’s factoring in the 8% slide it has suffered in the last month, and some rockiness in between.
But I was confident in PayPal stock during its fall blip and feel equally confident about it during this downturn. In the third quarter, the company’s sales growth blew away the average with an 18% year-over-year expansion. As a result, PYPL’s results for both revenue and earnings were aligned with Wall Street’s estimates.
Looking forward, such outperformance is expected to continue. PayPal is on track for 17% earnings growth per year long-term. That’s thanks to strong fundamentals, too. The company’s cash flow has been expanding nicely, while it’s a leading player in one of Silicon Valley’s hottest industries: mobile payments.
PayPal is always tossed around as an acquisition target, which could breed a nice windfall for investors, yet isn’t a moonshot like many other “hot” tech stars.
It has a diverse, substantial business. It boasts 192 million active customer accounts; Braintree is an important and popular integration service; and PYPL owns Venmo, a clear and growing leader in the mobile payment space.
As I’ve written before, PYPL has just been weighed down by expectations from its early startup days. In reality, it’s a mature platform still managing to post impressive growth. Investors shouldn’t expect or bet on a hyper-growth story when they’re drawn to PayPal stock. But they should be drawn in by the company’s strong fundamentals and positioning in the payments space.
This is especially true heading into the fourth-quarter and the holiday shopping season. Meanwhile, e-commerce broadly is a huge mega-trend, and one that truly shines during this time of year. Finally, mobile is the most impressive sub-category of that trend.
All of those trends play right into PayPal’s hands.
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.
