- PayPal (PYPL) stock is off its March lows but still sells for less than half what it did last July
- Management insists nothing has changed at the payment processor
- Paying the price for international growth
PayPal (NASDAQ:PYPL) stock rose 4.5% on April 4, continuing a bounce off a mid-March low that saw it trade near $100/share.
PayPal was due to open April 5 at $122/share. That’s a market capitalization of $142 billion on 2021 revenue of $25.4 billion. PayPal also has earnings, $3.52/share last year. That means the trailing price to earnings ratio is slightly below 35.
Analysts insist the company remains a growth story, but their money obviously disagrees. PYPL stock traded at over $300/share as recently as last July. The payment processor insisted in its final 2021 earnings report that all is right with its world. But analysts were reportedly disappointed by guidance for 2022 revenue gains of just 6%.
The question for small investors is, should you buy the bounce?
| PYPL | PayPal | $117.72 |
The Cost of Money
The values of financial technology companies have fallen in recent months, as the Federal Reserve moved to hike interest rates.
The argument is that if money costs money, those with the readiest access to it have an advantage. Banks like Bank of America (NYSE:BAC) and processors like Visa (NYSE:V) have seen gains over the last year. PayPal and other fintechs, like Affirm Holdings (NASDAQ:AFRM), have plunged in value.
Analysts are also turned off by the fintechs’ Bitcoin plays, which were once a draw. Block (NASDAQ:SQ), the formally known as Square, has fallen hard since the start of the year. PayPal is also crypto-curious, and for investors I think that business is a snake pit.
While PayPal developed as an alternative to Visa, it’s still a transaction processor. Over 90% of its revenues come from processing payments. Its detachment from the mainstream benefits it because it can offer international payments for a fraction of what banks and processors charge. Venmo, the direct payments company PayPal acquired in 2013, offers a model other companies have sought to copy.
Because of this, analysts say they’re mystified by the stock’s hard fall. They insist the company is undervalued and the stock is due to rise. The “smart money” is said to be all-in on PayPal.
But if that were true it wouldn’t have fallen.
The Cost of International Growth
PayPal rose in part thanks to international payments. PayPal’s U.S. revenues rose 12% in the fourth quarter. They were 27% higher in the December quarter than a year earlier. Meanwhile, international revenue flatlined as trade slowed and tensions rose. PayPal now gets 56% of revenue from the U.S., a mature market.
PayPal is also suffering from its 2015 separation from former owner eBay (NASDAQ:EBAY). Their payment agreement expired almost two years ago. The former parent now has its own managed payments unit.
Analysts thus questioned an abortive move by PayPal to buy Pinterest (NASDAQ:PINS) last year. They asked why PayPal would want to sell goods when it just spent 6 years getting out of that business.
The Bottom Line
PayPal has made mistakes. It has suffered from growing international tension. Inflation and the rising cost of money have investors looking elsewhere for profit.
But the company is not fundamentally broken. That’s why Wells Fargo (NYSE:WFC) recently began coverage of the stock with an overweight rating. In fact, 29 of the 40 analysts following PayPal at Tipranks tell customers to buy it. Their one-year price target is 47% ahead of its current price.
Despite what the analysts say, PayPal fell for good reasons. These analysts failed their customers, letting them be blindsided by obvious problems in the company’s business model.
That doesn’t mean you can’t buy PayPal now and make money. Give peace a chance and PayPal could zoom. Even without international growth it’s now selling at a reasonable price.
You can buy this bounce but watch the headlines closely. Be ready to sell if the international and financial heat get hotter.
On the date of publication, Dana Blankenhorn held long positions in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
