This month has been a pretty good one for PayPal Holdings Inc (NASDAQ:PYPL) stock. It started off with some bullish analyst commentary last Monday. Bernstein upgraded PYPL to “outperform” and issued a $61 price target on the stock. Bernstein analysts noted that a new checkout button, expanded partnerships and a potential strategic acquisition could help power earnings out-performance over the next several quarters.
KeyBank also got bullish on PYPL, starting coverage at an “outperform” rating with a $60 price target.
Then fireworks really started to fly on Wednesday, when Apple Inc. (NASDAQ:AAPL) added PayPal as a payment method in the App Store. That got investors really excited, and PYPL stock shot higher on that news. The following Monday, Samsung Electronics (OTCMKTS:SSNLF) followed suit. The Samsung Pay platform added PayPal as an accepted payment method. Then, PayPal announced that they had struck a deal with Visa Inc (NYSE:V) that enables the company to issue debit cards in Europe.
All in all, PYPL stock advanced more than 7% since July 10, a strong outperformance of the S&P 500 which inched just over 1% higher in that time frame.
But SunTrust rushed in with a downgrade on the stock, saying that the stock is trading at a premium valuation. Last week’s catalysts, argues SunTrust analyst Andrew Jeffrey, have already been priced in. According to Jeffrey, upside in PYPL stock is limited.
PYPL stock dropped more than 1.5% on the news.
Is this a buying opportunity into a secular growth story?
I say yes. Here’s why.
Why PYPL Stock Remains a Buy
Technology is rapidly changing the world, and that is creating some very strong secular trends which will persist for many years to come.
One such trend is the shift of sales from brick-and-mortar locations to digital channels. The rise of e-commerce as the go-to shopping method has in turn created a secular shift in the way people pay for things. It feels like cash is almost obsolete these days. Meanwhile, digital payment methods, like PayPal, continue to soar in popularity.
Consequently, PYPL stock wins so long as e-commerce continues to boom. But the critical component here is that e-commerce is booming outside of Amazon.com, Inc. (NASDAQ:AMZN). Amazon doesn’t accept PayPal, so Amazon retail growth doesn’t directly spill into PayPal growth. But Wal-Mart Stores Inc (NYSE:WMT) and Target Corporation (NYSE:TGT) do accept PayPal.
And those traditional retail behemoths are starting to get their act together on the digital side of things. Target just recently announced better-than-expected preliminary Q2 results. One of the drivers of the better-than-expected results? Target Restock, which is one of the company’s strategic initiatives to buff up its e-commerce presence.
And Target’s e-commerce growth has been impressive for some time. Last quarter, digital channel sales grew 22%. The quarter before that, they jumped 34%.
Meanwhile, Walmart is really executing well in building out its digital channel. E-commerce sales there rose 63% last quarter and 29% the quarter before that.
Elsewhere, other retailers and service providers that accept PayPal are also reporting scintillating e-commerce growth numbers. Ulta Beauty Inc (NASDAQ:ULTA) saw e-commerce sales grow 71% last quarter. Best Buy Co Inc (NYSE:BBY) said domestic comparable online sales increased 22.5% last quarter, on top of a 23.9% increase in the same quarter one year prior. Netflix, Inc. (NASDAQ:NFLX) just reported a blowout quarter that saw its biggest Q2 net add number in the US since 2011.
What do Ulta, Best Buy, and Netflix all have in common? They all accept PayPal.
Bottom Line on PYPL Stock
Buy PYPL stock on any dips. The valuation is rich, but it’s a secular growth story that is just starting to ramp up.
As of this writing, Luke Lango was long PYPL, AMZN, ULTA, BBY, WMT, TGT and NFLX stock.