Over the past two months, macro news and company developments have helped to boost formerly weak sentiment for Paypal (NASDAQ:PYPL) stock, but you may not want to jump to this conclusion. Despite recent bullish market sentiment, “show me” skepticism remains. PayPal has a lot to prove in 2024.
Worse yet, one major setback calls tangible results from the company’s turnaround efforts into question. Even if PayPal ultimately gets its house back in order (i.e. back to satisfactory levels of growth and profitability), before this happens, another wave of bearishness could hit the stock. As I’ll explain below, this makes buying in now a risky move.
PYPL Stock: What’s Really Behind the Recent Rally
PayPal’s stock price rose from around $50 per share in late October to around $63 per share today. Shares have gained by around 25% in less than two months, but this rally has been driving largely to a factor indirectly related to the company’s prospects.
I’m talking, of course, about the growing likelihood that, in response to cooling inflation, the Federal Reserve will begin cutting interest rates next year. This is perceived to be a positive development for fintech stocks. In fact, compared to other high-profile fintech stocks, like Block (NYSE:SQ) and SoFi (NASDAQ:SOFI), the rate cut rally with PYPL stock has been relatively modest by comparison.
SQ has nearly doubled since late October. SOFI is up by nearly 50%. Hence, the positive macro development has only moderately increased confidence in PayPal’s prospects. It hasn’t quite made the market certain that higher margins/a growth resurgence are just around the corner.
If that’s not bad enough, as I mentioned above, a major setback for PayPal has recently emerged. That would be news of Amazon’s (NASDAQ:AMZN) dropping of PayPal’s Venmo as a payment option on its eponymous e-commerce site.
A Bumpy Ride Ahead?
Admittedly, the “Amazon drops Venmo” headlines had but a slight, temporary negative impact on PYPL stock. Shares pulled back on the news, yet quickly got back on an upward trajectory.
Yet while the market brushed off this news that doesn’t mean you should brush it off. While the immediate effect on PayPal’s fiscal performance may be minimal, this development poses challenges for the company’s turnaround strategy.
PayPal’s efforts to have Venmo be a payment option on Amazon and on other platforms was part of its plan to better monetize its user base, considering falling active user numbers. The company may not report what investors want to hear in the coming quarters.
Instead, PayPal could end up reporting the same bad news of weak revenue growth, further user base declines, and a lack of progress bringing margins back to prior levels. In turn, this points to a bumpy road ahead for PYPL shares during 2024.
The Verdict
Those bullish on this stock are quick to point to a factor they believe counters the uncertainty surrounding the company’s future performance. That would be the stock’s low valuation.
Shares are currently valued at a multiple of 12.6 times forward earnings. Per the bulls, this provides a margin of safety for downside risk. Meanwhile, with shares heavily discounted, a smidgen of positive news could propel PYPL back to higher prices.
However, interest rates may now fall as much as expected right now. This could wipe out the rate cut gains. PayPal could also encounter challenges with its other efforts to catch-up to competing digital payment platforms. Put it all together, and it’s easy to see sentiment for this stock shift back to bearish in the coming months.
With this in mind, wait for weakness (or better yet, avoid) PYPL stock.
PYPL stock earns a D rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in AMZN. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
