Should I invest in PayPal shares after better than expected first-quarter results?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Jun 7, 2021
  • PayPal reported better than expected first-quarter results
  • PayPal made strong inroads into the cryptocurrency market
  • The risk/reward ratio is not good enough for "value" investors

PayPal (NASDAQ: PYPL) shares continue to trade above the $250 support level, and the company continues to benefit from the increased adoption of digital payments. Paypal reported better than expected first-quarter results last month, and the company continues to expand its business.

Fundamental analysis: PayPal ended the first quarter with 392 million active accounts

PayPal continues to benefit from the increased adoption of digital payments, and the company made strong inroads into the cryptocurrency market as a high-margin enabler of digital transactions. PayPal’s new crypto service allows users to buy goods and services with crypto, and the company also introduced a new Cash a Check feature in its Venmo app for select customers.

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PayPal reported first-quarter results at the beginning of last month; total revenue has increased by 30.5% Y/Y to $6.03 billion while GAAP EPS for the same period was $0.92 (beats by $0.28). It is important to say that the total payment volume grew 50% to $285 billion in the first quarter, and the company added 14.5 million new active accounts.

PayPal ended the first quarter with 392 million active accounts and raised its outlook for the upcoming years. The company’s management expects a 22% compounded annual growth rate for EPS over the next five years, while the revenues should rise to $50B by 2025.

PayPal also raised its outlook for the 2021 fiscal year and announced that it expects revenue of $25.75 billion while it sees 2021 total payment volume to grow by 30% at current spot rates.

“Our strong first-quarter results demonstrate our business as the world shifts into the digital economy. The guidance boost and better-than-expected results show that the company expects the surge in digital payments to continue growing after the pandemic,” said President and CEO Dan Schulman.

Technically looking, PayPal shares could advance above the current price levels, but the risk/reward ratio is not good enough for “value” investors. PayPal trades at more than sixty times 2020 EBITDA, and if we compare the total stockholders’ equity of $19.44 billion and the market capitalization of $309 billion, we can notice that this stock is not undervalued.

Technical analysis: PayPal shares continue to trade above the $250 support level

Data source: tradingview.com

The critical support levels are $250 and $230; $280 and $300 represent the resistance levels. If the price jumps above $280 resistance again, the next target could be around $300. On the other side, if the price falls below $250, it would be a firm “sell” signal, and we have the open way to $230.

Summary

PayPal continues to benefit from the increased adoption of digital payments, and the company reported better than expected first-quarter results last month. PayPal ended the first quarter with 392 million active accounts; still, the risk/reward ratio is not good enough for “value” investors.

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