PayPal (NASDAQ:PYPL) and other electronic payment companies are more popular than ever. This is thanks in part to the pandemic events of 2020. The rush to get online clearly made it a necessity to transact electronically. I know I made use of their offer of instant money transfer for free during the outbreak. It definitely came in handy when families were sheltering apart. Now there is another mad rush to PayPal stock and Square (NYSE:SQ) stocks from the digital wallet angle.
Venmo has over 50 million users and is expected to generate around a billion in revenues. It is also becoming a verb, which is a killer advantage over the competition.
As bad as this year was for people, it started a chain of events that rekindled the interest in e-coins. Bitcoin crushed its prior all-time highs, and for good reason. Global economies died so central banks kicked their quantitative easing efforts into an ultra high gear.
Moreover governments are topping things off with record fiscal spending. Just this week, the U.S. is approving another relief package for Covid-19. At almost $1 trillion, it will be the second largest of all time.
While this helps citizens short term it spells major trouble to currencies. As a results, the U.S. dollar has been in a free fall. Money rushed into gold and bitcoin to hedge against that.
The value of money was under assault and the only place to store wealth is where government can’t control. Paypal and Square are in the bitcoin game and getting better at it. They are becoming the money centers of the future, where the term “money” is slightly different.
Management Is Making All the Right Moves
Even though they are the relative newcomers, Paypal and Square are outsmarting the legacy credit card companies. They have positioned their tech to take advantage of whatever comes next.
The 2020 increase in electronic shopping volumes help offset the loss in in-store transaction revenues for them. They are definitely not letting this crisis go to waste. They now have emerged as leaders Visa (NYSE:V), MasterCard (NYSE:MA) and American Express (NYSE:AXP) are playing catch-up.
Even though the stocks are unstoppable, they are not immune to corrections. Nothing goes on for ever even though it may appear so now.
Granted, waiting for dips lately has felt futile, since PayPal stock just set a new record this week. But if an investor waited this long, then they can probably wait out a few more ticks. It is now up almost 200% from the March bottom and over 120% on the year. It is as if it’s crashing up, if that’s at all possible. Buying new shares now is fine as long as it’s a starter position, not all in.
Buying PayPal Stock Now Suggests a Long Term Commitment
Investors buying full positions up here must know that they want to own this stock for a very long term. Sharp rising wedges like this are susceptible for bad stints and without warning. This is not to say that the fundamentals are bad — they are not. Its valuation is out of whack, but that alone is not a reason to short a growth stock. PayPal doubled its revenues in four years, and results like these don’t come cheap.
I definitely don’t want to use the wrong metric to judge PayPal stock. The high price-to-earnings ratio of nearly 90 doesn’t scare me. The more important statistic is the price-to-sales and 14 is reasonable.
Sometimes the industry leaders snooze and the newcomers sneak past them. Nvidia (NASDAQ:NVDA) did it to the chips stocks and PayPal is doing it to credit cards. They have the inside track on the future of e-payments. The younger generations transact differently than before so there is a major shift going on. More business will be coming its way in 2021 and beyond.
Most traditional financial experts were wrong about bitcoin so they should watch out for PayPal stock.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.