Why You Should Buy PayPal Stock (PYPL)

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PayPal (PYPL) stock plummeted Monday morning, as fallout from the Chinese stock market meltdown spread to the U.S. shares of the payment-processor, once a part of eBay (EBAY), were off nearly 9% in early trading. (By midday, that loss had actually turned into a 1% gain — wild day!)

paypal pypl stockOn a day like today — when nearly every stock you look at is taking a bath — it’s a great time to scour the markets for deals. While I wouldn’t call PYPL stock a clear-cut, no-brainer buy at these levels, I do think it’s suffering a little more than it should.

Here’s why you should consider adding some PYPL stock to your portfolio:

Emerging Industry, Good Valuation

You may hear “PayPal” and think, “Why would I invest in the payment processor for an antiquated auction site like eBay?”

Well, that’s not all PYPL is anymore, by any means. In breaking loose from eBay, the company is now free to pursue other partnerships — think Alibaba (BABA), Amazon (AMZN), Etsy (ETSY), and other e-commerce hotspots like Wayfair (W).

Not only is the online and mobile payment processor at the forefront of modern commerce, PYPL stock is the only legitimate pure play on digital payments in the stock market today. Sure, Facebook (FB) and Apple (AAPL) both have mobile payment projects of their own in the works, but they’re hardly a material part of either business today.

Another catalyst for PYPL stock going forward is the failure of big-box brick-and-mortar retailers like Walmart (WMT), Best Buy (BBY), CVS (CVS), and Target (TGT) to create a mobile wallet. This failure has a name: CurrentC — the Merchant Customer Exchange’s attempt at a mobile wallet. InvestorPlace’s Greg Gambone explains why CurrentC could provide tailwinds for PYPL stock:

“…and without a fully functioning version of CurrentC available, many participating retailers have already announced intentions to begin accepting Apple Pay, Google Wallet, and other digital payment systems such as PayPal.”

So big retail’s inability to come up with a legitimate competitor to the likes of PayPal and Apple Pay should be beneficial to both going forward.

And from a pure valuation perspective, PYPL stock looks like a steal. Shares change hands for less than 24 times forward earnings, a modest — but deserved — premium to the NASDAQ 100, which trades at 19 times forward earnings.

With earnings per share expected to grow from $1.24 in 2015 to $1.48 in 2016 — a 19% clip — 24 times forward earnings seems mighty reasonable to me.

Today’s blink-and-you-missed-it pullback was an opportunity to acquire shares of solid, long-term companies and stocks like PYPL. But it’s still worth buying at current prices. Ten years from now, when you’re using PayPal to buy your groceries, you’ll be glad you did.

As of this writing, John Divine was long shares of AAPL, W, and PYPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/why-you-should-buy-paypal-stock-pypl/.

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