In the previous bull market, PayPal (NASDAQ:PYPL) was viewed as a high-quality growth company. But after a questionable acquisition strategy and a painful bear market, the stock has struggled to mount a meaningful rebound. While shares are up nearly 40% from their 2023 lows, PYPL stock remains more than 75% below its 2021 record high.
PayPal operates a global payments platform that enables digital transactions for consumers and merchants. Its brands include PayPal (obviously), Venmo, and Honey, among others — serving a wide range of use cases from peer-to-peer transfers to checkout, lending, and rewards.
Alex Chriss took over as CEO in September 2023, and the stock bottomed about a month later. Since then, he has steadily worked to turn the company around. While the stock fell more than 11% following last week’s earnings report, it was still a solid quarter. PayPal beat both earnings and revenue expectations, raised its full-year EPS outlook, and reaffirmed plans for $6 billion in share buybacks this year — nearly 10% of its market cap at current prices. Venmo also stood out, with 20% revenue growth, far outpacing the company’s overall sales growth of 8.2%.
Looking at the longer-term picture, analysts expect adjusted earnings to grow around 10% to 12% annually through fiscal 2028, with revenue growing at a mid-single-digit pace. As earnings growth outpaces revenue, PayPal’s buyback can give the bottom line a boost and operating margins — which are at a record high for the company — can continue to expand.
As Warren Buffett once said, “Price is what you pay, value is what you get.” Whether it’s a growth stock, a turnaround story, or a blue-chip stalwart, valuation plays a crucial role in determining whether investors are getting a good deal. Based on historical valuation metrics — such as forward price-to-earnings and price-to-free-cash-flow — PayPal stock appears relatively cheap.Risks
It’s easy to see double-digit earnings growth forecasts and what appears to be an attractive valuation and think, “This stock is a no-brainer!” But it’s important to remember that PayPal has had a depressed valuation for several years now. While the business is in better shape than it was two years ago, that doesn’t guarantee the stock will be rewarded with a higher multiple.
Also, look no further than 2025 for a reminder that PYPL is not a flight-to-safety value stock. Shares fell from the $90s to the $50s in just a few months. While that period was marked by heightened volatility, it’s a useful reminder: if the broader economy weakens, investors may once again turn away from this name.
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