Comparative Performance Will Determine the Future of PayPal Stock

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Deciding whether or not to invest in PayPal (NASDAQ:PYPL) stock has become an increasingly more complicated choice. The company continues to register substantial payment volume, revenue and earnings growth. As society continues to grow more cashless, PayPal stock and its peers will reap the benefits.

How Fast Can PayPal Stock Get to $200?
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However, these competitors have turned into PayPal’s more significant worry long term. With new companies and increased offerings coming from competitors, their stocks could turn into more profitable investments.

For now, investors need to not only look at the growth of PYPL stock but also look at its performance in comparison with other financial tech companies.

PayPal Impresses, But Trades in a Range

PayPal stock has never recovered from its second-quarter earnings report back in July. Before releasing Q2 earnings numbers, it had traded at just above $121 per share. It then guided revenue lower and sparked a selloff that took PYPL down by almost 20% over the next two weeks. It has traded in a range between about $95 per share and $111 per share since that time. The current PYPL stock price stands near $105 per share.

The third-quarter report produced more impressive results. Payment volume growth exceeded 25% and revenues moved higher by nearly 20%. Those increases, along with higher earnings guidance, caused PayPal stock to spike by more than 8.5% following the release. However, the stock remains well below its July high.

I still see PYPL stock as a long-term winner. Analysts project that profits will grow by 26.9% this year and 14% the next. At a forward price-to-earnings ratio of just under 30, I see PayPal as reasonably priced.

Moreover, analysts predict that digital payment volumes will reach $10.1 trillion by 2026. This amounts to a compound annual growth rate of 14.3% per year. At this rate of growth, a rising tide will lift all boats, PayPal stock included.

PYPL Stock Against Its Peers

However, investors need to ask whether PYPL stock will become the best choice. Here I am not so sure.

Competitive threats continue to increase. But its latest challenges don’t come from Square (NYSE:SQ). Apple’s (NASDAQ:AAPL) startup pay service Apple Pay grows its transaction volume four times faster. Facebook (NASDAQ:FB) will soon launch Facebook Pay. With its massive social media footprint, analysts see this as a serious threat to PayPal, mainly because of PayPal’s transaction fees.

Admittedly, the threats from both Apple and Facebook are recent phenomena. PayPal stock has benefitted from robust growth since its spinoff from eBay (NASDAQ:EBAY) in 2015. I expect as this keeps up, PYPL stock will break out of its range to the upside.

That said, Facebook has shown that PayPal will have to have an answer to the competitive threats that could affect its future. Until the company has an answer to that question, I think investors will see higher returns in other fintech stocks.

My Concluding Thoughts on PayPal Stock

PayPal stock will grow over time. However, for now, it does not look positioned to surpass its peers. After a disastrous second-quarter report, PayPal showed investors it could register respectable growth in the third quarter.

However, with massive growth in the payments space, new competitors continue to enter. Some such as Apple and Facebook greatly surpass PayPal in both market reach and in funding.

With a double-digit CAGR across its industry, a rising tide will help lift the PayPal boat. However, at least as of now, it does not appear poised to take PayPal stock higher than peers over the long run.

As of this writing, Will Healy is long SQ stock. You can follow Will on Twitter at @HealyWriting.


Article printed from InvestorPlace Media, https://investorplace.com/2019/11/performance-future-paypal-stock/.

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