Shares of PayPal Holdings Inc (NYSE:PYPL) fell more than 10% in after-hours trading on Wednesday following the company’s latest earnings report. The company posted impressive growth numbers in the latest quarter, but one snafu in the earnings call was enough to plummet the stock to where bulls may find better reward-to-risk opportunities once more to buy.
As one of my Q1 2018 themes I continue to like online payment processing companies such as PayPal from a thematic perspective. While this does not mean we have to chase these stocks higher at any price, it does mean paying attention when corrective periods or pullbacks occur where better buying opportunities can arise.
So you know, while PayPal dished up healthy profit growth in the last quarter and on a year-over-year basis, when the company said that it’s previous parent EBay Inc (NASDAQ:EBAY) will no longer use it as the primary payment processor as of 2020, investors fled. While revenue from eBay for PayPal has diminished as a percentage of total revenue, at roughly 20% it still is a significant portion.
I expect eBay to continue being a less-important source of revenue for PayPal in coming years as the company continues to expand into other markets, which is to say that ultimately, this post-earnings dip in PYPL stock should offer a better buying opportunity again.
PYPL Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear chart, we see that in the spring of last year, PYPL stock embarked on a steep rally that now in multiple time frames has it well extended and arguably in need of a pause.
Ultimately however, I expect the 2017 upside trend to resume.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, note the well-defined uptrend of PYPL stock since summer 2017. Note that the yellow 50-day simple moving average has held as good support. In after-hours trading on Jan. 31, this moving average was being threatened to break, which is to say that possibly the next layer of support is closer to the low $70s.
Either way, instead of trying to catch a falling knife, my strategy here is to a) take comfort in my bigger-picture bullish thesis in PYPL stock and b) look for a next strong bullish reversal (failed intraday sell-off) followed by a continuation buying day as a signal to buy the stock again from a near-to-intermediate-term perspective. Ultimately this stock could march toward the $100 mark.
Check out Anthony Mirhaydari’s Daily Market Outlook for Feb. 1.
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