PYPL with Nobias technology: PayPal Shares Crashed Nearly 23% Last Week. Is This A Buying Opportunity?
Last week, PayPal (PYPL) shares fell 22.90%. This performance pushed the stock’s year-to-date performance down to -33.14%. PayPal’s ongoing sell-off means that its shares are trading down 59.35% from their 52-week highs. In short, this former market darling has fallen off of its pedestal and in this piece, we wanted to see why that is and what the credible authors and analysts tracked by the Nobias algorithm have had to say about the stock recently.
PayPal’s sell-off last week spawned from its Q4 earnings report. The company beat Wall Street’s expectations on the top-line, posting $6.92 billion in revenue, representing 13.1% year-over-year growth. PayPal missed consensus estimates on the bottom-line, however, posting non-GAAP earnings-per-share of $1.11, missing analyst estimates by $0.01/share.
But, it doesn’t appear to be this bottom-line miss that caused PayPal’s steep sell-off, but instead, the company’s updated guidance. PayPal is expecting full-year 2022 revenue to grow at a 15-17% pace and for its full-year EPS to arrive in the $4.60-$4.75 range.
The mid-point of this new EPS range is just 1.5% above the $4.60/share EPS figure that PayPal produced in 2021. In short, now that PayPal’s expected growth rate has fallen from the 15-20% range which is what analysts have been calling for throughout the last 3-6 month period to the low single digits, the premium attached to PYPL shares has been slashed.
PYPL Feb 2022
When looking at recent research reports published by credible authors of PayPal, the majority of them came out before the recent Q4 report. Therefore, they don’t include knowledge of this recent guidance change. But, PayPal’s recent sell-off began weeks ago, so they did include knowledge of the stock’s recent negative trend. And, when looking at the published analysis, we saw a clear bullish lean here.
In short, the vast majority of the credible analysts/authors that we follow appear to be interested in buying the PYPL dip. For instance, Daniel Foelber, a Nobias 5-star rated author published an article in early January highlighting PYPL as a top growth stock that could rebound in 2022.
He said, “PayPal isn't growing as fast as it used to. But it's also a much more stable and profitable business. PayPal stands to be a long-term winner as e-commerce grows and the financial system becomes increasingly decentralized. A year or two of slowing growth when the underlying business is stronger than ever isn't a good enough reason to sell. Down around 40% from its high, PayPal looks like a great stock to buy now.”
Royston Yang, another Nobias 5-star rated author, highlighted his bullish stance on PayPal after the stock’s recent pullback in a recent article as well. Yang put a spotlight on PayPal’s longer-term financial trends, sort of echoing the sentiment that Foelber expressed, with regard to the importance of looking past short-term issues to see the broader picture.
Yang wrote, “PayPal had strong financials even before the onset of the pandemic. From 2016 through 2020, its revenue nearly doubled from $10.8 billion to $21.4 billion. Operating leverage helped the company triple its net income over the same period.” He continued, saying, “Its momentum continued into 2021 with the top line climbing 20.3% to $18.5 billion in the first nine months of the year. Net income jumped 27.8% year over year to $3.4 billion.”
In short, even though PayPal disappointed during its Q4 quarter and forward looking guidance, the fact is, over a longer period of time, this stock has been a big winner for investors and bullish analysts believe that this trend can hold true moving forward once short-term growth concerns are overcome.
Prosper Junior Bakiny, a Nobias 4-star rated author, recently posted a bullish report on PayPal where he called the stock his “Top Fintech Stock to Buy in 2022”. Bakiny touched upon the company’s recent weakness, which is largely based upon poor expectations of future growth; however, he believes that COVID-19 seasonality explains some of this 2021/2022 slowdown. He said: “In 2020, PayPal's business experienced abnormal growth as customers shifted their habits at the onset of the pandemic. Indeed, PayPal itself referred to its second and third quarters of 2020 as some of the strongest recording periods in the history of the company in terms of financial performance.
However, consumer habits were bound to revert to something more resembling pre-pandemic norms eventually, and that's what happened last year. Given this factor, it's not surprising that PayPal's business didn't look as strong last year as it did in 2020. The fintech juggernaut wasn't the only one to experience this pandemic-induced dynamic.” And, Bakiny says, even though PYPL’s share price performance during 2021 was far from stellar, “Last year wasn't a complete dumpster fire for PayPal”. He continued, providing a couple of potentially bullish catalysts for the stock moving forward.
Bakiny began by saying, “First, in the third quarter of 2021, PayPal announced that users of its peer-to-peer payment app Venmo would be able to pay for transactions on Amazon's main U.S. website with Venmo.” “Second,” he said, “PayPal acquired Japan-based buy now pay later (BNPL) company Paidy last year for $2.7 billion in cash; the transaction closed in September. BNPL allows consumers to submit payment for goods after buying them, often with no fees or interest.”
Bakiny quoted PayPal’s CEO, Dan Schulman, who recently spoke about this acquisition, saying, "This [acquisition] will accelerate our momentum in Japan, a strategically important market and one of the largest e-commerce markets in the world."
Ultimately, Bakiny believes that investors who can look past the short-term weakness and instead, focus on long-term growth opportunities here, will be rewarded. He concluded his report saying, “But zooming out helps offer perspective: PayPal has outperformed the broader market in the past two years, three years, and five years. Thanks to the opportunities it is pursuing through Venmo, its BNPL ventures, and others, PayPal is setting itself up to remain a leader in the fast-growing fintech market for many years to come.”
Another potentially fast growing market that PayPal could enter is the crypto space. Stjepan Kalinic, a Nobias 4-star rated author, recently broke down PayPal’s balance sheet in early January, explaining why he believes that PayPal has the financial wherewithal to invest heavily into the crypto space, should management desire to do so. At the end of Q3, he said, “PayPal Holdings had US$8.95b of debt, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$13.3b in cash, so it has US$4.35b net cash.”
Kalinic continued, noting that the company had $41.7 billion of liabilities on its balance sheet; however, he concluded, “Of course, PayPal Holdings has a market capitalization of US$220.4b, so these liabilities are manageable.” Ultimately, Kalinic said, “Although PayPal Holdings' carries some debt, it is clearly positive to see that it has net cash of US$4.35b.The cherry on top was that it converted 130% of that EBIT to free cash flow, bringing in US$5.0b.Overall, it seems PayPal passes our debt risk checks. If the company decides to pursue the crypto strategy, it looks like it can certainly afford it.” And, looking at the updated financials from PayPal’s Q4 report, it appears that the balance sheet strength that Kalinic highlighted remains in place.
As of its most recent report, PayPal had approximately $5.2 billion in cash, $4.3 billion in short-term investments, and $800 million in accounts receivable. Overall, the company reported $75.8 billion in assets. This compares favorably to the $54 billion in total liabilities that PayPal reported, which included $8.05 billion in long-term debt. And speaking of crypto currency, Keith Speights, a Nobias 4-star rated author, recently published an article highlighting 3 equities which he believes could produce returns greater than Bitcoin in 2022. One of those stocks was PayPal.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Regarding his bullish stance on PayPal, Speights said, “The shift to digital payments definitely ranks as an unstoppable trend. PayPal Holdings is a top leader in digital payments with 75% of the top 1,500 retailers in North America and Europe supporting its digital wallet. This makes PayPal an unstoppable stock, in my view.” Like Bakiny, Speights noted that PayPal continues to suffer from strong 2020 comparisons. He wrote, “Granted, PayPal didn't look unstoppable last year. Its shares plunged 19% during a bull market for most stocks. A big part of the problem was that the company's revenue growth slowed compared to 2020.”
However, he sees several strong growth opportunities for the stock ahead, echoing some of the sentiment already expressed above, “PayPal's buy now, pay later programs should fuel growth. Amazon.com now supports Venmo for online purchases. New features on the PayPal app (including support for trading Bitcoin and a few other cryptocurrencies) are attracting users. PayPal could bounce back significantly this year. And over the long run, the stock should truly be unstoppable.”
Overall, 90% of the reports that our algorithm has tracked regarding PYPL shares include “Bullish” opinions. And, when looking at the credible (4 and 5-star rated) Wall Street analysts that we follow, we see that the average price target attached to PYPL shares is currently $198.6. Today, PYPL trades for $115. This $218.40 fair value estimate is well below PayPal’s current 52-week high of $310.16; however, relative to PayPal’s current share price, it still represents upside potential of 73%.
Disclosure: Nicholas Ward is long PYPL. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.