Unfortunately for PayPal (NASDAQ:PYPL), there has been a bear market in growth stocks. While the rest of the market is sitting near the highs, including the Nasdaq, growth stocks are getting pulverized. Thankfully, that’s not the case for PYPL stock and other large-cap tech companies.
However, the carnage in tech isn’t doing these stocks any favors.
PYPL stock is down about 18.5% from its February high, which is around the same time growth stocks topped out. However, let’s keep some perspective too. Shares of PayPal are still up 4% for the year, up more than 25% over the past six months and have climbed 70% over the past year.
I think we can sit through a couple of months or even quarters of sideways price action.
PayPal keeps on delivering and it has made for an excellent core holding in any tech investor’s portfolio. With that said, here’s a closer look at what’s going on with PYPL stock.
Breaking Down PayPal
A quick look at PayPal yields a simple result: This company has years worth of growth left in the tank.
There’s something about looking past the mega-cap tech stocks, as well as the small- and mid-cap high growth stocks, and instead focusing on just the large-cap tech stocks. Oftentimes we can find the sweet spot here.
Meaning the companies that have established moats and a more reasonable valuation (not exactly value stocks, but not priced sky-high like growth stocks). Further, the high-quality names in this group still have strong growth left.
Look at the estimates for PayPal.
Consensus expectations call for 19.8% revenue growth this year, an acceleration to 20.6% in 2022 and another acceleration up to 21.4% growth in 2023.
Keep in mind, sales estimates for this year have climbed 27.4% in the past year. We can give the analysts a pass because at the time, the novel coronavirus was wreaking such havoc. But the conservative approach didn’t end a year ago.
This year’s estimates have climbed about 20% since the start of the year. With PayPal’s recent earnings report, the company beat top- and bottom-line expectations and gave a bump to its full-year guidance. Things are clearly going well here.
Despite the solid report though, shares climbed just 1.8% on the day. It’s now lower since the report. The anguish in high-growth stocks is casting a dark cloud over other tech stocks with strong growth. To us though, that’s OK.
PYPL stock has been a solid performer over the last 6 to 12 months and it’s fine to see some consolidation. Besides, it’s not the next few days or weeks (or months) we’re after. It’s the next few years. In that timeframe, PayPal should clearly be a winner.
Bottom Line on PYPL Stock
Future expectations for this company are impressive. To be at this size — with a $300 billion market capitalization — and spitting out roughly 20% annual revenue growth is impressive.
It also leaves PYPL stock in an interesting position from an investor’s perspective.
On the one hand, this is a solid growth company, but not what most would consider a high-growth company. You know, the small- and mid-cap tech stocks that have enormous volatility but often sport 35%-plus annual revenue growth.
However, it’s also not a FAANG component or what we would consider a mega-cap tech stock. That’s as several FAANG components command valuations north of $1 trillion.
However, PayPal is among a cohort of stocks that sits somewhere in the middle. It has a large enough market cap to be steady, yet enough growth to command a premium valuation. It finds itself in this sort of heralded middle ground where it’s not being punished like high-growth stocks, yet can outpace its large tech peers.
I think that creates opportunity in PYPL stock; an opportunity to buy something with the intention of having it as a core holding, while allowing it to blossom into a mega-cap tech holding in the long term.
Given its multi-year growth rate and the secular nature of its business, I don’t see why that can’t become reality. Consider its solid growth rates now, then factor in its exposure to cryptocurrencies. As it continues to expand in this arena, it should only create more opportunities in the future.
As we look at the chart, notice how well it continues to hold up. Above $277 and $300-plus is possible. Below this week’s low and perhaps we get an even better buy-the-dip situation near $225.
On the date of publication, neither Matt McCall 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.
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