Digital payments provider PayPal (NASDAQ:PYPL) reported blockbuster third-quarter numbers in early November, easily breezing past expectations. PayPal stock earnings included strong underlying growth trends but Wall Street — always working in mysterious ways — sent PYPL down after the strong print.

Long-term investors shouldn’t stress this near-term selloff. In the big picture, it’s much ado about nothing.

Indeed, in that big picture, all PayPal’s strong earnings report did was broadly underscore that PYPL stock is the strongest pure-play on the accelerating cashless revolution.

So, buy the dip in PayPal stock. It’s ephemeral. Soon enough, this long-term winner will get back to it’s normal winning ways.

Here’s a deeper look.

PayPal Stock: Stronger Earnings Than You Think

Despite the headline reaction from PYPL stock, PayPal’s third-quarter earnings report was really, really strong.

Across the board, PayPal flexed much better-than-expected, multi-year-best growth trends. Total payment volume in the quarter rose 36% year-over-year, a multi-year high and markedly faster than the company’s normal pre-Covid payment volume growth rates in the ~25% range.

Account growth clocked in at 22%, also a multi-year high and markedly faster than pre-Covid account growth rates in the ~15% range. Revenues rose 25% year-over-year. Again, this is a multi-year high. And, again, it is above where PayPal’s growth rates were prior to Covid (largely below 20% throughout 2019).

Get the point? PayPal’s growth trends meaningfully accelerated in Q3, amid the Covid-19 pandemic that thrust everyone into the e-commerce channel and forced everyone to adopt digital payment solutions.

More than that, this growth acceleration was driven by broad market tailwinds, so PayPal didn’t have to spend much to supercharge growth. That’s why operating margins expanded a whopping 380 basis points in the quarter — much bigger than the 100 to 200 basis points of expansion PayPal reported throughout most of 2019.

All in all, it was a stellar earnings report. If so, why did PayPal’s stock drop in response?

Because expectations were big heading into the print. PayPal stock needed a perfect print to head higher. Some imperfections showed up in the fourth-quarter guide (earnings growth is expected to slow marginally). Those imperfections sparked a selloff.

Makes sense. But it’s also just near-term noise that long-term investors would be wise to ignore.

The “New Normal”

Zooming out, PayPal’s strong third-quarter earnings confirmed that we are sprinting, faster than ever, into a “new world” where everyone buys everything online.

Here’s the thing.

The world was shut down in the second-quarter of 2020. Everyone had to shop online. No wonder PayPal reported enormous growth rates in Q2. Consumers had no other option but to buy online.

But, in the third quarter of 2020, the world normalized. Shops opened back up. Consumers could physically shop again. But they didn’t. PayPal’s third-quarter growth rates actually improved relative to the second quarter.

Sure, some of the hesitation to return to stores has to do with Covid-19 caution. Of course. But, more of it has to do with the fact that consumers have no need to go back to physical shopping. For most items, buying online does the trick.

That’s not to say that physical shopping is dead forever. Consumers like the social element of shopping. A trip to the mall can be fun and cathartic for some. But, most shopping trips will inevitably be digitized as consumers fall in love with the convenience of online shopping.

You can’t use cash to buy things online. You have to use digital payment methods.

To that end, Covid-19 took the cashless revolution which was already underway prior to the pandemic, and meaningfully accelerated it. In this revolution, PayPal’s suite of digital payment services — like PayPal and Venmo — are the market-leading solutions with the most capability and highest mind-share.

Big picture: PayPal will remain in hypergrowth mode over the next several years as the cashless revolution accelerates and goes global.

As that happens, PYPL stock will keep powering higher.

Big Growth Potential

The fundamentals imply that PYPL stock has huge long-term upside potential from current levels.

Global retail sales have a long history of rising 3% to 4% every year. E-commerce penetration into that market has been rising for several years, and will continue to rise for several more years, powering global e-retail sales growth on the order of 10%-plus. PayPal’s share of that market will slightly expand over time, due to international expansion, Venmo, and the company’s recent push into cryptocurrencies.

Thus, PayPal projects as a 10% to 15% revenue growth company over the next decade. During that stretch, expenses likely won’t rise much more than 10% per year, so operating margins should also gradually and consistently expand.

Adding all that up, PayPal projects as a 15% to 20% profit grower throughout the 2020s.

My numbers indicate that this growth trajectory will lead to around $20 in earnings per share by 2030. Based on a 25-times forward earnings multiple and an 8.5% annual discount rate, that implies a 2020 price target for PYPL stock of nearly $240.

Thus, down around $200 today, PYPL stock is undervalued.

Bottom Line on PayPal Stock

PayPal stock is a long-term winner that belongs on your “buy and hold” list because it is the market’s highest quality play the exceptionally strong cashless revolution.

In other words, buy PYPL stock, because cash is dying out.

It’s that simple.