Sometimes, the “buy low, sell high” principle is better in theory than in practice. Just because PayPal (NASDAQ:PYPL) stock lost money for investors in 2023, doesn’t mean it will stage a huge comeback in 2024. So, let go of your assumptions and think about PayPal’s risks before placing any trades.
Value investors shouldn’t jump to any conclusions based on PayPal’s price-to-earnings ratio or any other metric. After all, just because a stock has declined, this doesn’t automatically make it a bargain. When all is said and done, you may end up regretting it if you jump headfirst into a position in PayPal stock.
A Less-Than-Stellar Year for PYPL Stock
It’s been said that a rising tide lifts all boats, but this isn’t literally true in every case. For instance, you could have simply bought a fund tracking the S&P 500 and gained nearly 24% in 2023.
Better yet, you could have bought and held a popular technology stock, such as Amazon (NASDAQ:AMZN) stock, and posted excellent returns.
Yet, the rising tide of the technology market didn’t lift PayPal stock, which lost nearly 20% in 2023. And speaking of Amazon, PayPal suffered a major blow in late 2023 when Amazon announced that it’s dropping PayPal’s Venmo as a payment processing option at checkout.
This certainly won’t help PayPal improve its active user numbers (or its reputation, for that matter). It’s a problem that will affect PayPal in the new year, as Amazon won’t accept Venmo on the site mobile app as of Jan. 10, 2024.
To quote Evercore ISI analyst David Togut, the Amazon-related “news creates concern around PayPal’s ability to monetize on these platforms.” The implication, it seems, is that PayPal might lose more partnerships beyond the one that Venmo had with Amazon.
Will the ‘Buy Now, Pay Later’ Trend Boost PayPal Stock?
One of the primary themes in the financial media during 2023’s holiday shopping season was “buy now, pay later.” This trend received constant coverage, and PayPal stock has been identified as a possible beneficiary of the BNPL hype.
However, now it’s time for a post-holiday reality check. Trends come and go, and the financial media was almost entirely focused on the “buy now” part of BNPL. It’s the “pay later” part that’s potentially problematic, as some consumers might end up defaulting on their shopping-spree payment obligations.
Itay Vinik, chief investment officer at Equi, offered sobering remarks on this topic.
“One of the things I’m worried about is that holiday spending is going to be strong, but it’s going to be a sugar rush… Then we’re going to pay the price for that,” Vinik warned.
The BNPL hype cycle was exciting in late 2023, no doubt. However, it probably won’t benefit PayPal when the other shoe drops and shoppers actually have to pay their bills. Don’t count on the BNPL trend to catalyze PayPal stock in the long run.
Brace Yourself for a Letdown With PYPL Stock
Financial traders did much better in 2023 holding Amazon stock, or even an S&P 500 tracking index fund, than they did with PayPal stock. Looking ahead to the new year, it’s difficult to find a compelling value- or growth-based argument to invest in PayPal.
Plus, it was a serious setback for PayPal when Amazon announced that it’s dropping the Venmo payment option at checkout. Consequently, we don’t currently consider PYPL stock a high-confidence fintech-sector pick for 2024.
On the date of publication, David Moadel 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.
