PayPal (NASDAQ:PYPL) is the leading pure-play fintech company, and it’s growing fairly rapidly. Moreover, the company is quite profitable, and its new CEO looks poised to meaningfully boost its bottom line to please the Street. Finally, the valuation of PYPL stock is very low, and the shares have important, powerful macro catalysts going forward. Here are the four main reasons to buy PYPL stock at this point.
Impressive Growth and High, Rising Profits
In the third quarter, PayPal’s total payment volume climbed 15% versus the same period a year earlier to $387.7 billion, while its revenue advanced 8% year-over-year to $7.4 billion. During the current quarter, the fintech giant expects its sales to increase by 7% to 8%, excluding currency fluctuations. Those metrics show the firm is indeed generating impressive growth.
On the profitability side, the firm’s operating income, excluding certain items, advanced 8% year-over-year to $1.6 billion. And for the full year, PayPal expects its earnings per share, excluding certain items, to rise 10%.
A New CEO That the Street Will Greatly Appreciate
The company’s new CEO, Alex Chriss, took the helm five weeks ago. Speaking on the firm’s Q3 earnings call on Nov 1, he said, “Simply put, our cost base remains too high, it is actually slowing us down.” Chriss added that he is “in the process of evaluating our most profitable growth priorities and aligning our resources to those priorities. We will become leaner, more efficient and more effective.”
Without a doubt, large investors tend to appreciate cost-cutting. That’s why activist hedge funds nearly always push for reducing outlays when they become involved with firms.
Echoing that sentiment, Seeking Alpha columnist Juxtaposed Ideas recently wrote, “we believe that sentiments surrounding PYPL’s prospects may be bottoming soon” in the wake of Chriss’ commitment to cost reductions.
Moreover, Jefferies analyst Trevor Williams stated, “We were encouraged by new CEO Alex Chriss strongly emphasizing profitable growth as his top priority and a nod to further cost cuts.” The analyst stated that Jefferies doesn’t expect attitudes towards PYPL stock to improve until the Street has “more confidence” that its gross profits will increase in the “medium term.”
That could well be the case, making PYPL a good name for investors with medium-term time horizons.
Given the CEO’s commitment to implement significant cost reductions, I believe large investors will become more attracted to PYPL stock in the longer term, meaningfully boosting the shares over the next year.
A Very Low Valuation
The forward price-earnings ratio of PYPL stock is just 9.6, while its forward price-sales ratio is just over 2.
Given PayPal’s strong growth metrics, the company’s valuation is extraordinarily low.
Positive Macro Drivers
As PayPal’s growth suggests, fintech platforms are becoming much more popular. Indeed, earlier this year, prestigious consulting firm McKinsey predicted “fintechs could post annual revenue growth of 15 percent over the next five years.”
Among the trends likely to boost the sector are “rapid digital adoption, and e-commerce growth around the world, particularly in developing economies,” McKinsey believes. Also providing a boost for PayPal and its peers is the fact that “retail consumers globally now have the same level of satisfaction and trust in fintechs as they have with incumbent banks.”
Finally, as of 2021, 41% of the consumers who responded to a poll by McKinsey stated they planned to raise the extent to which they use fintech products.
So PayPal, as the leading fintech player in the U.S., is well-positioned to continue growing rapidly going forward.
On the date of publication, Larry Ramer did not hold (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.
