Amid the rise of financial technology (fintech) players, it’s difficult to stay immediately and consistently relevant. PayPal (NASDAQ:PYPL), a globally recognized and trusted brand, exemplifies this struggle. However, despite intense competition, especially in the buy now, pay later (BNPL) space (sector specialist Affirm (NASDAQ:AFRM) is up 90% in the past year, while PYPL stock is down 14%), PayPal remains integral to the gig economy.
It’s important to realize that PayPal is so much more than just a payment app. With its full stack of business management applications, it enjoys strong relevancies to the gig economy – relevancies that pure-play BNPL providers just can’t match. For the patient investor, PayPal could be a relatively discounted winner. Therefore, I am bullish on PYPL stock.
Gig Economy Projections Bode Well for PYPL Stock
Fundamentally, what makes PYPL stock so attractive for forward-thinking speculators is its addressable market. It’s already massive thanks to the gig economy — a community of independent contractors that provide services to various entities.
According to Business Research Insights, the global gig economy reached a valuation of $355 billion in 2021, but experts believe that the sector could be worth over $1.86 trillion by 2031. If so, that would imply a compound annual growth rate (CAGR) of 16.18%.
What’s more, this projection could be conservative. In the past few years, corporate employees have realized that they don’t necessarily need to be tethered to a physical office to conduct operations; instead, they can technically be anywhere with a reliable internet connection.
Of course, employers have increasingly become skeptical about work-from-home (WFH) productivity claims. After all, well before the pandemic, studies showed that the average worker wasted more than two hours a day. Not surprisingly, major firms have issued return-to-office (RTO) mandates, which later became ultimatums. Plus, Wells Fargo (NYSE:WFC) recently fired some of its workers for “faking work.” That will almost surely make business leaders rethink their WFH policies.
At the same time, Americans generally don’t like to be told what to do. Having sipped the independent and adventurous lifestyle of gig workers, many will likely refuse RTO mandates and quit. This dynamic should expand the gig economy and, in turn, may help boost PayPal’s addressable market.
That’s because PayPal offers many useful business management services, such as invoicing and automated cash flow statements, that align perfectly with gig workers’ needs. Plus, the brand is trusted by many enterprises globally, fostering trust on both ends of the contractual relationship. It’s a huge advantage for PYPL stock that more investors should pay attention to.
A Complex but Compelling Valuation Story
Not only has PYPL stock slipped over the past one-year period, but during the past five years, it has lost 50%. Moreover, it’s well off its 2021 peak, when it briefly traded for over $300 a pop. However, if the underlying sector isn’t projected to perform well, an investor could be buying into a value trap if relative price represented the only condition.
With many other enterprises, it’s easy to judge their valuations. You look at what analysts are forecasting, then compare the reasonability of that estimate based on industry trends. From that, you have a pretty good idea of whether a security is fairly valued or not.
With PYPL stock, the underlying business primarily has connections with the credit services sector. At the same time, it also has many shades of application software relevancies. Presently, PYPL trades at 2.17x trailing-year revenue. That’s a bit hot compared to the credit service sector’s average multiple of 1.88x.
However, as stated earlier, PYPL stock offers more utility, particularly for the gig economy. Against the application software sector, which runs a multiple of 3.8x, PayPal appears discounted.
Further, the consensus view calls for the company’s revenue to hit $45.13 billion in Fiscal 2028, a big move up from last year’s $29.77 billion. If so, we’re talking about a CAGR of 8.68%. That’s roughly in line with what the payment processing sector is projected to hit through that cycle (9.2%).
Again, please note that PayPal offers more than just payment processing, which is what gives PYPL stock its fundamental value.
Is PYPL Stock a Buy, According to Analysts?
Turning to Wall Street, PYPL stock has a Moderate Buy consensus rating based on 13 Buys, 15 Holds, and zero Sell ratings. The average PYPL stock price target is $74.55, implying 26.1% upside potential.
The Takeaway
When stacked purely against payment processing apps, PayPal encounters significant competition. It’s no wonder, under this context, that PYPL stock has performed so poorly. However, the underlying entity offers a wide range of business management services – services that will be crucial to participants of the burgeoning gig economy. When factoring in this piece of the puzzle, PYPL appears to have compelling upside potential.
