Shares of fintech powerhouse PayPal (PYPL) took a noticeable dive after underwhelming quarterly results were released on July 28. Taking a closer look at the details, however, investors may have overreacted.
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PayPal missed on revenue in the preceding quarter and also released guidance for the current quarter that fell short of expectations.
Yet, given that many of these adjustments relate to former parent eBay (EBAY) speeding up its transition away from using PayPal’s payment processing platform, concerns may be overblown.
Other factors still remain in its favor, so investors could see the stock, which closed at $278.28 on Monday, as a “buy-the-dip” opportunity. (See PayPal stock charts on TipRanks)
Valuation may be stretched at 54x forward earnings, and upside potential from here may be limited. Yet, investors may still dive back in on the chance that it makes a return back to its 52-week high of $310.16 per share.
PYPL Stock and Its Latest Earnings Miss
eBay’s move away from PayPal’s payments platform may have been a drag on the last quarter’s results and may also affect the current quarter, as seen from the guidance provided.
Yet, PayPal appears to remain firmly in growth mode, despite the loss of a major customer. For the quarter, non-eBay revenue grew 32% year-over-year. Payment volumes continue to grow at a healthy clip. Venmo, PayPal’s peer-to-peer payment platform, saw total transaction volume rise 58% compared to the prior year’s quarter.
Simply put, investors remain focused on the deceleration of growth fueled by the eBay transition, while less attention has been paid to the factors that could reignite the company’s growth in the coming year.
Investors Could Still Come Around
For now, last month’s quarterly results continue to weigh down PYPL stock, in addition to concerns that rival Square (SQ) could have a clear advantage after its purchase of the “buy now, pay later” platform Afterpay (AFTPF).
However, too much attention may be being paid to this move as well.
Why? As mentioned above, PayPal remains a growth story. Its total transaction volumes continue to soar, thanks in large part to the success of Venmo.
The company is building a name for itself in the world of crypto as well. Its recent crypto-cashback tie-in with Venmo could accelerate this company into a leading purveyor of crypto-economy services to retail investors.
With indications that PayPal could exceed expectations in the quarters ahead, investors might realize the growth potential in the stock and start to bid it up once again.
Wall Street’s Take
According to TipRanks, PYPL stock has a Strong Buy consensus rating based on 22 Buy and 3 Hold recommendations.
The average PYPL price target is $336.91 per share, implying 21.1% upside from current levels. Analyst price targets range from a low of $280 to a high of $375 per share.
Bottom Line: Potential Buy-the-Dip Opportunity
PayPal’s rich valuation might make it seem unappealing, however, considering it remains a company in growth mode, with earnings expected to climb 21.5% this year and 25.3% in the next, there could be enough to justify PYPL stock moving back to its previous highs.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
