The world has been pursuing the digital revolution for decades. A large aspect of that is handling financial transactions electronically. The onset of the pandemic last year pushed that process forward in a huge way. Suddenly we found ourselves in urgent need for fast and cheap ways of moving money around the world. PayPal (NASDAQ:PYPL) was in the hick of it and PYPL stock took flight.
It rallied 275% from the bottom of the pandemic crash to the February highs. Sadly for the bulls, Wall Street is hating on it lately. After the summer double top, PYPL lost 35% of its value.
Today, the message is that this too shall pass. PayPal stock will find love again.
I have a constructive opinion on its fundamentals, and there is technical support. The bullish thesis is strong, but we will dress it up nicely nonetheless. Back to the pandemic use case, I personally took advantage of their generous offer for instant free transfers. Usually that is a premium service, but they temporarily waived the fee last year. My extended family is global and we appreciated having that venue from PayPal. The fact that it happened instantaneously and free was awesome.
With all of that in mind, here’s a closer look at how to approach PYPL stock today.
PYPL Stock: Facts Trump Analyst Estimates
My experience with PayPal does not infuse special bias toward my bullish opinion on the stock. The company recently reported earnings and the reaction by Wall Street was too negative. The report itself was not bad, but it may have missed expectations.
When I weigh opinions versus facts, I give facts much heavier credit. This is my nice way of saying: Who cares about someone’s estimates? All I need is to know that they continue to grow sales and earnings.
I remember writing about PYPL’s potential in 2019 when it was $100 below current prices. At the heart of every bullish thesis, is the viability of the business.
There is absolutely no doubt that PayPal’s functions are necessary. It and Square (NYSE:SQ) have been doing a great job pushing the old credit card companies forward. Visa (NYSE:V), MasterCard (NYSE:MA) and American Express (NYSE:AXP) are playing catch up now.
Moreover, there have been new entrants like SoFi (NASDAQ:SOFI) and Affirm (NASDAQ:AFRM). The whole cohort is “fintech,” and it’s on fire. Their services extend far into the retail sector as well as the commercial side. In addition, they have entered into new territories like crypto. There is a high likelihood that these fintech companies will be leading our global financial future.
PayPal stock will be right there to benefit from that trend. This is definitely a sustainable movement and not a fad.
PayPal Stock Is Cheap
Fundamentally, PYPL is a relatively a cheap stock. Even though they are blazing trails, management is maintaining sane valuation metrics. Its price-to-sales is 10x and that’s in line with mega-tech companies like Facebook (NASDAQ:FB). They can’t pinch pennies any tighter and still double sales in four years. Amazon (NASDAQ:AMZN) proved that concept for a decade.
Technically, there is good news from the charts. PayPal stock has been a catastrophe, but it is approaching prior bounce levels. More often than not when stocks do that they find buyers lurking there. As long as the stock market doesn’t correct in the next few weeks, it should start its recovery. Investors should do well if they practice moderation and patience.
The current macroeconomic conditions are still bullish because of the amount of money circulating. However there is risk from the indices breaking records. They become susceptible to sharp sudden drops. The bulls will buy the dip, but they might have bearish stents and those could hurt PYPL stock.
It is teetering just above another bearish trigger. Therefore, a small negative jolt from the market could send it over the edge for another drop. This is why it makes sense for investors to break up their entry into several tranches. No one should have absolute certainty in their conviction.
I am very optimistic about the long-term outlook of PayPal stock, but short-term, I’m cautiously optimistic.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.