PayPal Stock: 3 Reasons to Consider Buying

I am bullish on PayPal (PYPL) as it has a solid competitive position in the fintech industry, significant growth momentum, and substantial upside potential relative to its average price target.

PayPal, founded in 1998 and headquartered in San Jose, California, is a company that offers a digital payments platform that allows customers to receive and send the payments they make on different platforms. The platform provides a wide array of solutions to its customers through online payment options, including PayPal Credit, PayPal, Venmo, Hyperwallet, Xoom, and more.

The two-sided network connects merchants with its customers, who can utilize PayPal to transfer or withdraw their money. Its websites, Venmo and Xoom, also offer P2P solutions for PayPal customers.

Here are three reasons to be bullish on PYPL stock:

#1. Strong Network, Technological, and Scale Advantages

PayPal operates in approximately 200 countries across the globe. Its large number of customers includes approximately 426 million active users, which has allowed it to create and maintain a diverse portfolio of clients.

The diversified portfolio is achieved through a wide variety of services, such as PayPal Credit, Digital Goods, PayPal Zettle, online invoicing, and Virtual Terminal.

The company has also invested a significant amount in technology, adding to its competitive advantage in the market. In 2002, after the acquisition of PayPal from eBay, the company’s primary focus was on making the payment processing system more secure, which it successfully achieved.

For this reason, and because the platform adds an element of convenience for the mass market, PayPal will continue its operations in the long term.

#2. Substantial Growth Momentum

In the fourth quarter of 2021, PayPal announced that the year was one of the strongest the company has ever experienced in terms of financial growth and expansions. The company has overtaken more projects, adding more products and experiences for its vast customer base.

The company amassed total net revenues of $6.9 billion in the quarter, while net revenues for the fiscal year totaled $25.4 billion. The year-over-year change was 13% and 17% for the quarter and the year, respectively.

However, its GAAP earnings per share dropped slightly from $0.92 in the third quarter to $0.68 in Q4. GAAP earnings per share for the year came in at $3.52, showing a 1% year-over-year decrease. Also, PayPal reported that as of 2021, it expanded its Pay Later services globally, including the launch of “Pay in 3” in Spain and Italy.

#3. Significant Valuation Upside Potential

PYPL stock looks attractively valued at the moment. Its forward enterprise-value-to-EBITDA ratio is low relative to its past, at 17.3 times compared to its five-year average of ~26.7 times. Furthermore, its forward price-to-normalized-earnings ratio is 24.5 times compared to its historical average of 38.7 times.

Wall Street’s Take

According to Wall Street analysts, PYPL earns a Moderate Buy consensus rating based on 27 Buys, 10 Holds, and one Sell rating assigned in the past three months. Additionally, the average PayPal price target of $182.59 puts the upside potential at 60.3%.

Summary and Conclusions

PYPL is a leading innovator and disruptor in the FinTech space. As a result, it has substantial economies of scale, business and client networks, and technological advantages. When combined with its enormous growth runway, this, in turn, gives it strong growth momentum and potential to continue growing in the years to come.

Last but not least, the stock price looks undervalued at the moment. In particular, the vast majority of Wall Street analysts are bullish on the stock here and give it massive upside potential relative to the current stock price.

As a result, it looks like it might be a good time to add shares here.

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