Got $5000? Buy World Class Fintech Stock It’s Down 49%

sRabbits of mobile payment leader PayPal Collectibles (NASDAQ: PYPL) It has given up 49% of its annual value so far, thanks to a broader sell-off linked to stubbornly high inflation and higher interest rates. Overall headwind, as well as company-related problems such as ebay‘s (NASDAQ: EBAY) The move to a different payments platform has resulted in less than ideal growth for the fintech giant recently.
But I would expect the PayPal business to re-emerge in a big way. Not only does the company own 50.3% of the online payment processing market, but it also continues to expand its business with service offerings such as Venmo – a leading peer-to-peer payment platform – and Buy Now Pay Later (BNPL), a rising concept that allows consumers to pay for items An equal number of installments over a specified period of time.
With all that in mind, let’s take a look at the current state of PayPal to help investors gauge whether the stock is worth their time today.

Image source: Getty Images.

Let’s focus on the basics

PayPal delivered its second-quarter earnings summary hours after August 2, which led to a much-needed rebound in its share price. The company’s total sales rose 9.1% year-over-year to $6.8 billion, ending in line with Wall Street estimates, and its adjusted earnings per share fell 19.1% to $0.93, but it managed to reach the top of the consensus forecast of 6.6%.

Meanwhile, the total payment volume (TPV) amounted to $339.8 billion, up 9.3% from last year. The company also added 400,000 new accounts, bringing its total accounts to 429 million.
PayPal’s growth in the quarter was good, but it certainly wasn’t without flaws. During the earnings call, CEO Dan Schulman stated that shifting eBay payments caused a 400 basis point decline in top-line growth in the second quarter. But on the bright side, he also noted that the impact should fall to 100 basis points in the next quarter and be minimal from there.
eBay previously signed an agreement with I am convicted, a global payment processor, to serve as the primary payment processing partner, and take the position from PayPal. As a result, the digital payments company is currently facing increasing difficulties, but it should be in good shape once eBay is completely out of the picture. Ex-eBay revenue growth was flat north of 20%.
Shulman also discussed the company’s goal to reduce its cost structure by leveraging its massive scale to drive cost reductions across its supplier base. In 2022, it expects to reduce costs by $900 million across the operating and transaction expense categories, and in 2023, it expects to save an additional $1.3 billion.
That doesn’t mean PayPal isn’t actually in a healthy financial position — the company has $8.3 billion in cash and short-term investments, and it generated $1.3 billion in free cash flow (FCF) in the second quarter alone. This translates to 21.9% year-over-year growth. Even after its new rush, PayPal is still trading at 29x earnings, which is a huge discount from the five-year average price-to-earnings multiple of 57.2. In other words, investors should not feel that it is too late for the game to buy stocks.

Should Investors Ditch PayPal Today?

PayPal is a solid investment right now for patient long-term investors. In many ways, I can understand the continued decline we’ve seen with fintech companies, as it’s all too common for investors to dump speculative stocks in times of economic uncertainty.

But PayPal is different – not only does the fintech juggernaut control a large part of the nascent mobile payments market, it is also extremely profitable and constantly generates FCF. This doesn’t sound like a speculative investment to me, yet investors continue to penalize the company in this way. Pair that with its all-time low rating, and PayPal appears to be a great investment opportunity today.
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Luke Meindl holds positions at PayPal Holdings. Motley Fool has and recommends positions at Adyen NV and PayPal Holdings. Motley Fool recommends Adyen and eBay and recommends the following options: Short October 2022 calls at $50 on eBay. Motley Fool has a disclosure policy.

The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.

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