The mobile payments space remains one of the hottest corners of Silicon Valley. Stripe, which is a fast-growing startup in the category, recently snagged an investment round at a valuation of $9 billion, up from last year’s $5 billion. Yet this enthusiasm hasn’t had much of an impact on PayPal Holdings Inc (NASDAQ:PYPL). For 2016, the shares have only gained about 9%, so is it time investors start taking a closer look at PYPL stock?
I think so. Keep in mind that the company’s growth has continued at a nice pace. In the latest quarter, revenues jumped by 18% to $2.7 billion and net income came to $323 million.
Interestingly enough, PayPal has been showing lots of strength in foreign markets, such as in China. So what else makes PYPL stock a good investment right now? Let’s take a look at three key factors:
Reason to Buy PYPL Stock : The Mobile Megatrend
This holiday season, consumers are ramping up their use of smartphones as digital wallets. In fact, last week’s Black Friday was the first time that mobile purchases exceeded $1 billion on a daily basis, according to research from Adobe Systems Incorporated (NASDAQ:ADBE). There was a 33% increase compared to last year.
Even traditional brick-and-mortar operators are reaping the benefits. About 60% of online orders for both Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) came from mobile sources over the weekend. They have been investing in their apps, allowing for features like tracking of promotions, loyalty points, gift cards and merchandise availability.
And the mobile payments industry is expected to experience strong long-term growth. According to eMarketer, U.S. volume alone is forecasted to jump from $8.71 billion in 2015 to a whopping $210.45 billion by 2019. However, keep in mind that about 85% of global transactions are still done with old-fashioned cash.
Reason to Buy PYPL Stock: The Moat
PayPal stock has many tough competitors to contend with, including traditional financial firms like Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM), as well as mega online operators, such as Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL).
Despite all this, PYPL stock still has some big-time advantages. First of all, the company is the pioneer of the payments space, having been founded back in 1998. As such, PayPal has had time to build a solid brand and a top-notch infrastructure. The company has also been able to develop systems to deal with complex issues like fraud.
Another big bonus for PayPal stock is that it has a diverse platform. Besides the core payments service, there is Xoom (which allows for international remittances for families and friends), Braintree (provides third parties the ability to handle transactions) and Venmo (which is a mobile app that is a must-have for Millennials).
Yet PYPL also realizes it cannot do everything. This is why the company has been aggressive in forging alliances. Just some of the marque partners include Visa Inc (NYSE:V), Mastercard Inc (NYSE:MA), Alibaba Group Holding Ltd (NYSE:BABA) and Facebook Inc (NASDAQ:FB).
Reason to Buy PayPal Stock: Buyout Potential
The intense competition in the mobile space is a clear indication of the market’s strategic importance, and a good way to get a solid foothold is to strike an acquisition. No doubt, PayPal stock is certainly among one of the few with tremendous scale — there are about 192 million active customer accounts — and a diverse set of assets.
What’s more, there is still much room for a lucrative bid. According to InvestorPlace.com’s Dan Burrows: “PYPL stock currently changes hands at 23 times forward earnings. That’s a rather slim premium for a company with a projected compound annual growth rate of 17% for the next half decade. That’s especially true in a bull market, where multiple expansion is the order of the day.”
Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own tax preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.