After showing a triple-digit return in 2020, is it reasonable to expect even more gains from PayPal (NASDAQ:PYPL) in 2021? Where is the top for PayPal stock?
The payments processor had a huge year last year, giving investors a 115% return as the novel coronavirus accelerated the trend of online retail and digital payments.
After starting the year at less than $115 per share, PayPal stock finished 2020 at $234 and has continued its climb through the first two weeks of 2021.
I think that’s just the tip of the iceberg.
PayPal will continue to profit from a huge increase in volume and accounts. And there are a couple of new headwinds, thanks to its efforts in China and with cryptocurrency, that should push PayPal even higher.
Deutsche Bank analyst Brian Keane recently raised his firm’s price target for PayPal stock from $234 to $275. That would represent a 13% gain.
I have no doubts that PayPal will hit that mark. In fact, I recently named PYPL as one of my best picks for 2021.
PayPal Stock at a Glance
The first thing to know about PayPal is its amazing growth. In its most recent earnings report, PayPal disclosed that it is profiting from a huge increase in volume and accounts. It says it added more than 15 million new accounts were added in the third quarter, bringing the company’s total to more than 360 million.
Total payment volume for the quarter was up 38% on a year-over-year basis. And the company’s Venmo product, which specializes in customer-to-customer money transfers, saw a 61% increase and $44 billion in transactions during the quarter.
A lot of this was brought about by Covid-19 – when the pandemic took hold, people decided that handling physical money wasn’t such a good idea and they turned to digital payment platforms.
Third-quarter earnings were strong, with revenue of $5.46 billion and earnings per share of $1.07. Both of those beat analysts’ expectations of $5.42 billion and EPS of 94 cents.
PayPal is expected to release its next earnings report in early February. The company has guided earnings growth to slow to 17% to 18% because of what it calls an acceleration of “incremental investment” in the fourth quarter. However, full-year EPS is expected to be 27% to 28%.
The China Factor
While the U.S. economy is the biggest in the world, China is nipping right on Washington’s heels. Factor in that China’s annual GDP growth is nearly triple that of the U.S., and you have an extremely attractive opportunity for investors.
Now PayPal is firmly in the Chinese market, and I see that as a huge long-term benefit for PYPL stock.
Earlier this month, PayPal acquired the remaining 30% stake in Guofubao Information Technology Co. – otherwise known as GoPay. It previously purchased a 70% stake in the company for an undisclosed sum.
That means that PayPal is now the first foreign company to have total control of its payment platform in China. It will now compete with payment processors such as Ant, which is owned by Alibaba (NYSE:BABA), and with WeChat Pay, which is owned by Tencent (OTC:TCEHY).
As popular as digital payments are in the U.S., they are even more so in China. Beijing made the change from a cash economy to one that is primarily digital in just two generations. By next year, nearly 700 million people in China are expected to be using a digital payment platform.
Considering that PayPal currently has 360 million on its platform, the potential is huge for expansion in China. Competing with Chinese companies on their home field will be a challenge, but the rewards can’t be ignored.
Bitcoin Is a Boon
Some of you may know that I recently lost a bet with InvestorPlace’s Matt McCall as to which would reach 40,000 first – the Dow Jones Industrial Average or the price of Bitcoin (CCC:BTC).
Obviously, Matt won that one as bitcoin prices skyrocketed, so I’ll be sending $5,000 to a charity of his choosing to pay off that friendly wager.
Despite bitcoin’s amazing run, I still lean toward finding strong growth stocks with a history of solid returns to anchor my portfolio. Bitcoin and cryptocurrencies are extremely volatile. But they’re also interesting, and that interest is giving PayPal stock some extra fuel in 2021.
A report from Zack’s Equity Research shows that cryptocurrency trading on PayPal is soaring over the last two weeks, with volume reaching a record $242 million.
PayPal has partnerships with some major bitcoin payment processors such as BitPay and Coinbase. It also invested in a startup, TaxBit, which does cryptocurrency tax automation software so people can figure out what kind of taxes they owe on their crypto holdings.
Even if you don’t own cryptocurrency of your own, PayPal gives investors a way to profit from the keen interest in bitcoin and other digital currencies as the prices fly up and down. It’s an easy, stress-free way to work the volatility of bitcoin to your advantage.
The Bottom Line
I’m not suggesting that PayPal stock will generate another triple-digit return in 2021. But it seems clear that the company’s growth story has a few more chapters to go.
PayPal is continuing to grow and expand in the U.S. as the transformation continues to a digital economy. Add to that the company’s investments in China and its partnerships with bitcoin payment processors, and you have a recipe for success.
PayPal stock has an “A” rating and a strong buy recommendation in my Portfolio Grader.
On the date of publication, Louis Navellier owns shares of BABA and had a long position in PYPL. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
