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Warren Buffett’s Next Big Bet? Why PayPal Stock Might Be on Berkshire’s Radar.

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  • PayPal (PYPL) has seen PYPL stock lose more than 70% from its 2021 highs. 
  • PayPal stock is cheap by every metric imaginable. 
  • Analysts still like it, but it does have a hill climb. 
PYPL stock - Warren Buffett’s Next Big Bet? Why PayPal Stock Might Be on Berkshire’s Radar.

It has not been a good year in the markets for PayPal (NASDAQ:PYPL). PYPL stock Is down nearly 26% in 2023 and more than 28% over the past five years. At one point in 2021, it was trading over $300.

This has led to speculation that Warren Buffett might buy PayPal stock. When Berkshire Hathaway (NYSE:BRK.B) filed its Q3 2023 13-F on Nov. 14 with the SEC, it revealed it was building a position in an unnamed company.

Barron’s contributor Andrew Bary speculated on Nov. 16 that it’s possibly a financial company.

“The stock is likely a financial company because Berkshire disclosed in its 10-Q that its cost basis in financials went up in the third quarter by about $1.2 billion, while its cost basis in other groups of stocks declined. The filing shows Berkshire didn’t add to its existing holdings of financial stocks, indicating it moved into a new company,” Bary said.  

Barron’s best guesses of who the mystery company is are Morgan Stanley (NYSE:MS), BlackRock (NYSE:BLK), and Chubb (NYSE:CB)—all excellent companies.

However, here’s why he might consider the beaten-down payments stock. 

PYPL Stock Is Cheap

I’ve noted how far its stock fell over the past two years from its lofty heights in July 2021. However, just because a stock has dropped in price does not mean its shares are a bargain. We’ve all bought a falling knife in our investing past.  

InvestorPlace’s Michael Que recently discussed why PYPL stock is undervalued. Despite increased competition and regulatory changes, Que argued that there is no getting around the fact PayPal has 433 million active accounts across 200 markets worldwide, enabling it to capture 42% of the global digital payments market share.

According to Morningstar.com, its current earnings yield is 6.05%, 2.7x its five-year average. Its enterprise value of $58.8 billion is just 9.47x its EBITDA (earnings before depreciation and amortization), more than two-thirds less than its five-year average. 

By every financial metric, it’s cheaper than it’s ever been.

PYPL Stock Bull Still on Board

Mizuho Securities analyst Dan Dolev has long been bullish about PayPal’s prospects. However, on November 15, Dolev dropped his price target by $20 to $72. Fortunately, the analyst maintained his Buy rating on the stock. 

Dolev believes PayPal can merge its platform with Venmo, its peer-to-peer payments platform, to create a global digital wallet, WallStreetZen reported. 

“Venmo is a verb and it’s something that is tremendous in the U.S. and has opportunities beyond. If I think about all the different core problems that we can solve with the assets that we have for customers, Rewards, Buy Now Pay Later, Cashback cards, all of those are tremendous and within our grasp,” Chriss said. “We just, as I mentioned earlier, just have to put them together into a core value proposition, and that’s what the team is working toward right now.”

Newly appointed CFO Alex Chriss had good things to say about Venmo in the company’s Q3 2023 conference call with analysts. 

Chriss reiterated what Dolev said about its two platforms. Venmo and PayPal can work together to build a more profitable business. 

Company to Lower Costs

PayPal shares gained in early November after Chriss stated that to become a more profitable business, it needed to lower its cost base by focusing on its “most profitable growth priorities.”

As is often the case with large companies that expand globally, their expenses sometimes outpace revenue growth. With the new CEO, Chriss can go to work rightsizing the business. 

The CEO’s understanding of the company’s obstacles to success impressed analysts. With a new CFO and Chief Technology Officer recently introduced by Chriss, he has the management in place to pursue his vision for the future of PayPal. 

Buffett could look to back the company at this critical time in its history. With or without Berkshire, PayPal is an excellent long-term buy. 

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2023/11/warren-buffetts-next-big-bet-why-paypal-stock-might-be-on-berkshires-radar/.

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