As a leading global digital payment leader for 20 years, PayPal (NASDAQ:PYPL) stands out among the rest. PYPL stock has gained international recognition as a top fintech stock to own for the long term.
Of course, since PayPal’s dramatic rise following the pandemic, this stock has been among the worst-performing large-cap tech players in recent years. While the company’s valuation was likely overblown during that mania-driven rally, it’s also true that the company’s strategy under former CEO Dan Schulman of growing its user base at any cost wasn’t one that was prudent over the long term.
With a new CEO (Alex Chriss) at the helm, investors now see an opportunity for sustainable long-term growth on the horizon. Here’s why PayPal remains an intriguing growth stock to buy right now, in my view.
CEO Alex Chriss is Highly Optimistic
After being appointed as the new CEO of PayPal, Chriss was only focused on two things: driving growth and operational efficiencies. Unlike any other fintech company, PayPal has been consistent in terms of delivering positive earnings, which speaks to how well the company is doing under Chriss’ management.
Although PayPal’s margins have remained stagnant, Chriss is optimistic that soaring earnings will come for the company, and there will be increases in cash flow, share repurchases, and more in 2027.
The company’s much-awaited Q4 and full-year earnings report will be released on February 7. The company is now preparing to showcase its AI-driven innovations for 2024, and Chriss and CFO Jamie Miller will likely showcase conservative 2024 guidance.
The company’s management team is now working on speeding up its innovation. PayPal’s recent innovation-day presentation on January 25 speaks to the company’s intent on becoming a powerhouse in its sector, utilizing AI appropriately.
Excellent Valuation
PayPal’s previous valuation metrics in the 2020-2021 period were incredible. The company traded at an astronomical valuation which even I was skeptical of at the time.
Accordingly, a string of analyst downgrades and various declines tied to macro, sector, and company-specific catalysts have pushed PayPal’s valuation to reasonable levels. Now trading at 9.9 times forward earnings and 1.9 times forward sales, PYPL stock is valued more like the mature tech company it is.
The days of massive growth are likely behind PayPal, but the company is now trading like a value stock. Thus, this fintech player, trading well below its historical averages, deserves a look.
In Q3 2023, the company saw a 15% increase in total payment volume, $1 billion in free cash flow, and a significant 8% increase in revenue. Although there has been margin improvement under the new CEO, some investors are pessimistic, while savvy buyers see the low valuation as an opportunity to grab PYPL stocks.
PayPal is Still Dominant
PYPL stock ended 2022 with 79% market share among other fintech retailers and companies. While ApplePay is a significant competitor, PayPal still wins because of its broad reach and faster transactions with $1.6 trillion TPV in Q3.
James Faucetter from Morgan Stanley (NYSE:MS) anticipates Chriss’ AI role discussion on how PayPal can enhance its consumer and merchant personalization. Bryan Keane from Deutsche Bank (NYSE:DB) also shares insights on leveraging data for more profit increase and improving conversion rates through AI.
Despite declining 14% in 2023, PayPal gained a significant 6% in 2024. This has shown some contributing factors such as short interest that can contribute to the company’s success.
PayPal now has 428 million active accounts worldwide, and it continues to experience increasing engagements in transactions per user. The company is well positioned to be a fintech leader, as it excels in providing solutions for online shops and e-commerce stores. PayPal can gain traction from increasing cashless transaction usage in this digital society.
Buy PYPL in a Heartbeat
PayPal now appears to be on track for sustainable and consistent growth, following its chatter strong earnings report. The company’s recent innovation event, its new management team, and its valuation (in bargain territory) present a compelling bull thesis for investors right now.
On the date of publication, Chris MacDonald 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.
