Tech stocks are in the green in 2023, but not all fintech stocks have fared well. PayPal (NASDAQ:PYPL) stock certainly hasn’t been a winner this year, and the near-term prospects aren’t great. It’s a textbook example of the principle that just because a stock has declined sharply doesn’t mean isn’t a bargain.
PayPal stock gets a “D” grade because a U.S. regulator could cause problems soon for PayPal and other non-bank fintech businesses. When all is said and done, there are other places to park your investable capital and there’s no urgent need to risk your money on PayPal.
Is Beaten-Down PYPL Stock Really a Good Value?
Momentum-focused investors certainly shouldn’t like PYPL stock, as it has underperformed many other stocks in 2023 so far. Should value investors put PayPal on their radars, though?
Probably not, as a low share price isn’t the same thing as a good value. We can apply some commonly used valuation metrics to drive this point home.
First, PayPal’s GAAP trailing 12-month price-to-earnings ratio is around 17x, and that’s much higher than the sector median P/E ratio of 9.59x. Also, PayPal’s trailing 12-month price-to-book ratio of 3.12x is significantly higher than the sector median P/B ratio of 1.06x.
PayPal is profitable, but the company’s per-share income appears to be shrinking. Specifically, PayPal reported third-quarter 2023 net income of 93 cents per share, compared to $1.15 per share in the year-earlier quarter.
Going forward, investors should monitor PayPal’s quarterly bottom-line results and hope to see growth instead of deceleration. Otherwise, it will be difficult to build a case for PayPal stock as a good value.
Regulatory Scrutiny Could Weigh on PayPal Stock
Moreover, here’s another potential problem for PYPL stock in 2024. PayPal and other non-bank fintech firms in the U.S. may soon see increased oversight.
According to Barron’s, the Consumer Financial Protection Bureau recently proposed a new rule. It would “subject large nonbank consumer payments companies to reviews by the CFPB’s examiners.”
Bloomberg also reported on this story, noting that “CFPB examiners would be able to monitor payment apps for compliance with federal money-transfer laws, as well as for unfair, deceptive, or abusive conduct” under the proposed rule.
In addition, CFPB Director Rohit Chopra stated that the rule would subject “nonbank payments companies” to “appropriate oversight.” Chopra didn’t mention PayPal by name in this statement. It’s clear that PayPal is the type of company that could get audited by the CFPB.
This doesn’t mean you can’t invest in any non-bank fintech company. However, it’s an indication that investors should be highly selective. It would be frustrating if you bought PayPal stock and then watched it tank if the CFPB punished or penalized PayPal.
PYPL Stock: Not a No-Brainer Buy Even If It Looks Cheap
Sure, PayPal is profitable, but the company’s per-share income appears to be declining. Besides, some valuation metrics indicate that PayPal stock isn’t really a bargain at all. On top of all that, PayPal could face increased regulatory oversight soon.
These are issues that financial traders need to consider if they’re thinking about investing in PayPal. So, in the final analysis, PYPL stock gets a “D” grade and isn’t strongly recommended right now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
