Online payment processing firm PayPal Holdings Inc (PYPL) is a stock that has been on many investors’ buy lists since its split from eBay Inc (EBAY) and rumors of a buyout began to circulate.
Over the past six months, however, PYPL stock has gained nearly 20%, making it too expensive to bet on just yet.
The analysts at Compass Point recently downgraded its rating for PYPL from “buy” to “neutral,” citing worries about the company’s capital management.
In particular, the firm expressed concern regarding PayPal’s recent acquisition of XOOM, a money transfer company, for $890 million. The purchase, Compass Point commented, was a bad decision as market conditions may have caused PayPal to overpay.
Not All Bad for PayPal Stock Holders
While PayPal stock may be too expensive to buy at its current price point, that doesn’t mean it’s a bad company to hang on to if it’s already in your portfolio.
At the moment, PayPal is the only publicly traded company to focus solely on online payments. Since its beginnings at eBay, PayPal has made its way into almost every company’s online payment options menu and has continued to invest in its expansion.
PayPal may not be on top forever, though: Digital payments have become a key focus for tech giants like Apple Inc. (AAPL) and Alphabet Inc (GOOG, GOOGL) and the emergence of new ways to pay could threaten PayPal’s stability. The company has yet to make it’s way into brick-and-mortar stores, which could be a downfall as programs like Apple Pay offer payment solutions that bridge the gap between physical stores and online shopping.
PayPal has invested heavily in the mobile payments space, but it remains to be seen whether or not those bets will pay off.
Not only is PayPal investing some of its cash in promising fintech companies like Acorns, a startup aimed at getting millennials into investing, but there is talk that the company could eventually partner with even bigger payment processors like Visa Inc (V).
Such a partnership has the potential to lower PayPal’s transaction expenses and bring in new customers who would prefer to link their account to a credit card rather than bank account.
Bottom Line on PYPL Stock
A deal with Visa isn’t the only reason PayPal stock could make its way higher. Rumors that PayPal itself could be acquired is another reason investors have flocked to the stock.
While it’s still possible that PayPal could be bought out, many analysts believe very few companies would be able to afford such a purchase given current market conditions. For that reason, buying PayPal stock in hopes of an upcoming buyout would be a risky play.
The bottom line on PayPal stock is that the company isn’t a bad one to own, but with shares trading above $40, it’s too expensive to buy right now. For those interested in adding PYPL to their portfolio, it’s worth waiting for a pullback before getting onboard.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
