- PayPal (PYPL) investors are undoubtedly seeking relief after the company’s disappointing financial report.
- Yet, that relief is unlikely to come as PayPal will have to deal with a potentially turbulent cryptocurrency market.
- Investors should sidestep these tricky issues by simply refraining from buying shares of PayPal.
It’s no secret that digital payments processor PayPal (NASDAQ:PYPL) has gone all-in on cryptocurrency and the blockchain. That might sound promising, but PYPL stock is a no-go as regulatory risks are likely to inhibit the company’s and the stock’s progress.
Sure, it might be tempting to “be a hero” and embark on a bottom-fishing expedition as a PayPal investor. It could be a costly mistake, though, to confuse a low share price with a bargain.
To avoid the value trap, you’ll want to look at PayPal’s financials, but also observe the bigger picture. PayPal’s investors may be desperate for a share-price turnaround now, but a tough regulatory environment could dampen any sense of optimism in the coming months.
What’s Happening With PYPL Stock?
As it turned out, buying PYPL stock near $300 last summer was a costly mistake. It’s a textbook example of what can happen when people buy stocks during a hype phase.
There’s no denying that PayPal’s shareholders are struggling with a fierce downtrend. Not long ago, the stock threatened to break below $100. If that happens, it would deal a psychological blow to the already distressed PayPal bulls.
The company’s most recently issued quarterly financial data release certainly didn’t help the bull case. PayPal’s fourth-quarter 2021 results showed that the company missed Wall Street’s per-share profit target, but that wasn’t even the worst part.
PayPal’s disappointing forward guidance was the real kicker. Specifically, PayPal also expects to earn between $4.60 and $4.75 per share in fiscal-year 2022. That’s well below the analysts’ consensus forecast of $5.25 per share.
Furthermore, Jefferies analyst Trevor Williams observed that PayPal’s revenue for 2022 revenue is expected to grow 16%, which is below the initial guidance for 18% revenue growth. Knowing this, Williams stated that PayPal’s fiscal-year 2022 outlook, “to put it bluntly, lacks anything redeeming.”
Crypto Crackdown Poses Risks
It’s fine if you’re interested in cryptocurrency. You can even invest in it if you’re so inclined. Just be aware that as long as you’re holding PYPL stock, you’re indirectly exposed to the crypto market.
With that, you may find yourself fighting an uphill battle against regulators and the government in general. For instance, not long ago, President Joseph Biden signed an executive order with a tough stance on cryptocurrency.
The executive order made no bones about the potential risks involved in the crypto trade:
“Digital assets may pose significant illicit finance risks, including money laundering, cybercrime and ransomware, narcotics and human trafficking, and terrorism and proliferation financing. Digital assets may also be used as a tool to circumvent United States and foreign financial sanctions regimes and other tools and authorities.”
It’s not difficult to figure out what Biden’s order was referring to when it mentioned “sanctions.” There are concerns that Russia could use — or may already be using — cryptocurrency to circumvent economic sanctions.
PayPal has fully embraced cryptocurrency; there’s no denying it. This could be problematic, as the U.S. Department of Justice is reportedly forming a task force that may target Russia’s efforts to use cryptocurrency to evade sanctions.
Strict scrutiny and/or regulation of cryptocurrency could convince PayPal’s investors to bail. If this causes PYPL stock to go below $100 and stay there, it could be just the start of a prolonged bear raid.
What You Can Do Now
PayPal’s investors are in a tough spot. The company is committed to cryptocurrency and the blockchain, but regulators appear ready and able to set up major roadblocks.
Besides, PYPL stock is on a clear-cut downtrend. Prospective investors should know the difference between real value, and a value trap. There’s no need to get trapped now as PayPal’s financial issues could persist for quite a while. Therefore, staying on the sidelines is perfectly reasonable.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.