PayPal Stock Could Be Hurt by Market Weakness Despite India Catalyst

PYPL can benefit from its success in India, but PYPL stock could be derailed by a market correction

paypal stock

Source: Shutterstock

Amid the bloodshed in the broader technology space, PayPal (NASDAQ:PYPL) is a breath of fresh air. While so many other names have cratered, PYPL stock returned a little over 13% last year. True, that pales in comparison to the gargantuan rise of PYPL in 2017, but given the context, no one is complaining.

Still, investors shouldn’t get complacent. Although the digital-payments processor has avoided much of the market’s recent drama, PayPaL stock was not completely immune. Last autumn, the record-breaking momentum of PYPL suddenly halted. From September through December, PayPal stock gyrated wildly and did not find any meaningful traction.

Even more worrisome, PYPL stock fell meaningfully on Thursday. After Apple (NASDAQ:AAPL) lowered its revenue guidance due to poor iPhone sales in China, nearly all tech stocks fell. Although PayPal isn’t directly impacted by Apple’s problems, the news has negative implications for it.

The Timing Isn’t Great for PayPal Stock

Timing is also a critical issue. PYPL is slated to release its fourth-quarter earnings results near the end of this month. If management doesn’t deliver the goods, PayPal stock could finally suffer the pain that its peers have experienced.

Bolstering the case for PayPal stock is the company’s core industry. As I wrote a few years back, cash is “quickly going out of style.” Most Americans use debit cards to make most of their purchases. Among millennials, almost no one ever uses cash.

Thus, the drives towards convenience and digitalization support the bull case for PYPL stock. But one headwind facing PYPL is that many other tech companies recognize this trend. PayPal’s competitors, including Square (NYSE:SQ) and Shopify (NYSE:SHOP), are entering the crowded online payment and merchandising space.

But investors will want to see more than just a “vanilla” earnings beat by PYPL, and they’ll be trying to determine whether PYPL can exploit new opportunities.

India May Be a Catalyst for PYPL Stock

Fortunately for shareholders, PYPL has an ace up its sleeve: India. With so much attention given to China, it’s easy to forget that India is also an emerging-market powerhouse. Plus, its population of 1.34 billion isn’t too far below China’s headcount.

Just recently, PYPL disclosed that its revenue from India had surged over 1200% year-over-year. According to rumors emerging from the company, management was deeply encouraged by the jump. As a result, it’s decided to invest more money in India and expand its workforce there.

The positive data really comes at an idea time for PayPal stock, which is currently rangebound. And there are multiple reasons why the company’s positive trends in India should continue. For starters, India’s GDP per capita is growing at an impressive rate. In fact, the country’s GDP is increasing more rapidly than it did at the beginning of this decade.

Along with this trend, India has experienced a rise in digital literacy, leading to an increase in e-commerce. The nation currently has 460 million internet users, making it the second-largest online market, trailing only China. According to Forrester Research, India’s e-commerce sector may be worth $64 billion by 2021.

Furthermore, India’s advanced smartphone trends should improve PayPal’s results there. India has integrated its 4G networks, bringing the country closer to developed-market standards. And the 5G rollout will eventually spread throughout India, creating more opportunities for PYPL.

Finally, India is a much better environment for PYPL than China from a geopolitical perspective. That’s because, while the Trump administration is in the midst of a trade war with China, it probably won’t want to start a trade conflict with India.

Not Enough Confidence in PayPal Stock

On the surface, PYPL’s India catalyst should provide investors with an easy buying opportunity. But context is everything. When it comes to PYPL stock, I believe that broader market concerns outweigh the company’s positive attributes. The tech sector has suffered severe declines. Since PayPal is levered to both tech and consumer sentiment, I’m worried that PYPL could be meaningfully affected by a possible correction.

Additionally, India has emerging-market risks as well as emerging-market opportunities . One of those risks is government oversight. The Indian government recently introduced legislation that makes it harder for Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) to compete against local businesses. So far, regulation hasn’t harmed PayPal’s ambitions in India, but it’s still a threat to PYPL stock.

Don’t get me wrong: I really like PayPal stock. Several times, I’ve championed its drive to make our economy more digital. But above all, I’m practical. The markets are obviously shaky, which signals that a sharp pullback could occur without warning. And PYPL stock could be badly hurt by such a pullback.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2019 InvestorPlace Media, LLC