- PayPal (PYPL) stock hasn’t been this cheap for quite some time.
- Growth is slowing as the pandemic and stimulus payments wind down.
- Bulls are saying you should buy the dip.
PayPal (NASDAQ:PYPL) stock has fallen and it can’t get up. PYPL stock is down 58.3% this year, opening for trade on May 24 at $79.89 per share. It hasn’t been this cheap since former President Donald Trump’s presidency. The market capitalization is $90.9 billion and the price-to-earnings ratio is 25.87.
Much of the fall consists of multiple compression, combined with the fact that growth is slowing. PayPal’s first quarter earnings release bragged about a revenue gain of 7%, with expectations of 11% to 13% growth for 2022. Overall, the company earned $509 million, or 43 cents per share, on revenue of $6.48 billion.
Still, the bears had their reasons. PayPal is now down almost 75% from its 52-week high of $310.16 and is near its lowest valuation ever.
|PYPL||PayPal Holdings, Inc.||$78.60|
Why PayPal Fell
PayPal fell for two reasons. First, profits are down. And second, investors are down on crypto.
Net income during the first quarter of 2021 was nearly $1.1 billion. Net cash flow for the first quarter of 2022 fell 29%. Free cash flow fell 32%.
PayPal was one of the early financial technologies (fintechs), offering a payments alternative to Mastercard (NYSE:MA) and Visa (NYSE:V), which can take 3% on every transaction. Consumers know it best from Venmo, its direct payment app. PayPal warned as far back as February that its growth and margins were slowing as government stimulus ended and the Federal Reserve prepared to raise interest rates.
The current environment has hurt all fintechs, like PayPal, more than it has hurt banks. Visa, for instance, is down just 6.5% this year. Credit card bank Capital One (NYSE:COF) investors only have 20% less in their wallets. Banks that use customers’ money to grow have a big advantage over fintechs that depend on investors as capital markets dry up.
But PayPal is also a booster of cryptocurrency and has its own exchange. It has been selling Bitcoin (BTC-USD) since 2020. With Bitcoin down 31.2% on the year and some coins’ value wiped out, that no longer looks so smart. However, PayPal remains committed to its crypto and blockchain efforts.
Why PayPal Might Rise Again
I have personally soured on PayPal because of its crypto exposure.
Bulls who go on camera to tout PayPal don’t even mention crypto. Instead, they note that its continuing divorce from eBay (NASDAQ:EBAY) will soon be complete. Absent eBay transactions, PayPal’s payments volume grew 15% in the first quarter.
PayPal also has an explanation for its miniscule growth in user accounts, from 426 million in December to 429 million by the end of March. They simply let inactive accounts churn out, the company says.
So far, only one analyst at Tipranks has abandoned PayPal and put out the “sell” signal. There are 33 analysts in total, and 27 give it a “buy” rating. Even the seller has a price target above where it’s currently trading.
The Bottom Line on PYPL Stock
I covered crypto extensively in the last decade here at InvestorPlace. I wrote almost four years ago that its primary purpose was political.
I still believe that. I just don’t believe in its politics.
Bitcoin is backed by nothing. There’s no coin and it’s not a call on any economic activity. Governments around the world, including the U.S., are now looking to regulate it as an asset. The ownership of crypto is even more top-heavy than the Forbes 400. If this is the revolution, it’s a Gucci revolution.
Absent crypto, however, PayPal is worth buying. It’s still growing and it’s still profitable. If global growth returns, the stock will do extremely well. Much of the bearishness is just that, an assumption that the world is dividing into self-sufficient zones of influence and that global trade will slow.
If you disagree — and especially if you believe in crypto — then PayPal is the stock for you.
On the date of publication, Dana Blankenhorn held no positions in stories mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.