PayPal stock has woken up suddenly: how high can it get?

PayPal stock price has staged a strong comeback in the past few weeks as investors went bargain-hunting. PYPL also jumped as investors priced in a potential acquisition. It rose to $50 on Wednesday, its highest level since February this year. 

PayPal stock has soared amid bargain hunting

The ongoing PYPL stock surge has coincided with that of other similar fintech companies like SoFi, Affirm, Block and Upstart.

One major reason is that PayPal and these companies have become bargains as their slowdown continued. In PayPal’s case, its forward price-to-earnings (P/E) ratio dropped to 9.30, much lower than the sector median of 10. 

PayPal’s five-year average stands at 21, while the S&P 500 Index has a multiple of 19. This makes it a bigger discount than most companies, which would make it a good acquisition target. 

A Bloomberg report released earlier this year suggested that Stripe was considering making a bid for the company. Still, no announcement has been made so far, and it is unclear whether PayPal would accept it. 

One reason why PayPal would not accept it is that it recently announced a new Chief Executive Officer (CEO) who is tasked with implementing a turnaround. As such, the case would be that a potential turnaround would be better than a full buyout.

Why PYPL stock has become cheap

There is a good reason why PayPal stock has become a bargain. For one, PayPal is a different company today than what it was a few years ago. At the time, it was being valued as a growth stock as its number of users and revenue surge.

Today, investors see it as a value stock experiencing weak revenue and user growth. It is no longer adding millions of users as it did before. Indeed, its number of users remained stagnant at 439 million in the last quarter.

PayPal’s revenue growth has also stagnated. It made $8.6 billion in the fourth quarter of last year, up by 4% YoY. Its annual revenue rose by just 4% to $33 billion. In the past, PayPal was used to experience double digit growth.

One reason for this is that competition has grown across all its businesses. For example, companies like Stripe, Klarna, and Affirm have taken market share on the checkout. 

Similarly, stablecoins like USDT and USDC are gaining share in peer-to-peer payments because of their low transaction costs and fast speeds. 

PaPal has had some success in the stablecoin industry, where its PYUSD has achieved a market capitalization of over $4 billion. However, PYUSD’s revenue is still minuscule. 

With interest rates at 4%, and with the assets remaining at $4 billion, the company is making $160 million, a tiny amount considering that it made over $33 billion.

Analysts have low expectations for the PYPL stock price. BNP Paribas recently boosted the target from $41 to $43, while Citigroup hiked $48. Bank of America analysts and KGI Securities have a target of $48 and $55.

PayPal share price technical analysis

PYPL stock chart | Source: TradingView 

The daily chart shows that the PYPL stock price crashed to a low of $38.91 in February and then bounced back to the current $50. It is attempting to fill the gap it made after releasing weak financial results.

The stock has moved above the key resistance level at $48.40, the upper side of the small cup-and-handle pattern, a common bullish continuation sign in technical analysis.

Therefore, the short-term outlook for the stock is bullish, with the next key target being at $58, the 50% Fibonacci Retracement level, which is about 20% above the current level.