PayPal (NASDAQ:PYPL) stock is dropping today. This time the reason is that its chief financial officer (CFO) and executive vice president John Rainey is leaving the company. Rainey is heading to Walmart (NYSE:WMT) to become the CFO for the giant retailer. With the company due to report earnings on April 27, what should investors do with PYPL stock?
Whenever a publicly traded company has to replace a key executive position, the markets usually respond. And it’s also fair to say they usually overreact. Such is the case, I believe, with the Rainey announcement.
In the first place, people leave jobs for many reasons. There’s nothing to suggest that Rainey is leaving PayPal because he felt the company was in trouble. And secondly, I tend to focus on the idea that he’s going to Walmart. For a company that’s making an aggressive move into the digital space, this seems like a good move. Part of PayPal’s mission is to democratize financial services for those that are underserved. There could be some synergy to bring that knowledge and expertise to Walmart.
Another reason being given for the drop in PYPL stock is that, in making the Rainey announcement, they did not restate their previous guidance. This is leading some to believe that the company will disappoint when they report later this month. And that previous guidance was for earnings per share (EPS) between $4.60 and $4.75 well below the forecast for $5.25 per share.
The news gets worse when you consider that many investors are expressing concern about a slowing rate of revenue growth. In 2021, the company’s revenue increased by 18%. However, that was below the 21% growth recorded in 2020.
With earnings fast approaching, there’s no reason to make an impulsive move into PYPL stock at this time. Simply based on the company’s revenue and free cash flow position (it generated $5.4 billion in free cash flow in 2021), there’s reason to believe that PYPL stock may be a buy. However, now is a time when it’s best to not fight the tape.
On the date of publication, Chris Markoch 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.
