PayPal stock price analysis: PYPL has formed a risky pattern

By:
on May 10, 2024
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  • PayPal share price has formed a rising wedge pattern on the daily and weekly charts.
  • The company’s growth rate is significantly lower than other fintech companies.
  • It has also continued shedding the number of active users on its platform.

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Watching PayPal’s (NASDAQ: PYPL) stock price implode has been painful to see. A stock that was trading at $310.40 in 2021 has crashed by about 80% to the current $64.45. A $10,000 investment in PayPal at its peak would now be worth about $2,080.

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Growth has stalled

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PayPal is one of the most popular fintech companies in the United States. In addition to its eponymous brand, the company also owns other firms like Braintree, Honey, Venmo, Xoom, and other smaller firms. 

After experiencing strong growth before and during the Covid-19 pandemic, its performance has stalled. Some of its metrics like the number of active users has continued to deteriorate because of the strong competition. Its active users dropped by 1% to 417 million in the last quarter.

The recent financial results showed that PayPal is not growing as it used to. Revenue growth came in at 9% to $7.7 billion. A 9% annualised growth rate is not bad considering that the blended S&P 500 growth rate stands at about 5%. 

However, for a fintech company like PayPal, such a growth rate is not all that encouraging since other companies in the industry are doing much better. Visa and Mastercard, companies that have been around for decades, grew by 10% in Q1. 

Block, the parent company of Square and Weebly, grew by 32% while Affirm, a leader in Buy Now Pay Later, grew by 51%. This performance means that PayPal’s business is struggling as the management attempts to implement a turnaround.

The results revealed that its operating income rose by 17% to $1.2 billion while its cash flow from operations was $1.9 billion. PayPal has over $17.7 billion in cash and equivalents against total debt of $11 billion. It has also returned $5.1 billion to investors in the trailing twelve months.

The challenge for PayPal is that its turnaround strategy is not going as fast as analysts were expecting. It also lacks a clear catalyst that will help to supercharge its performance since competition in its core markets is rising. 

The only encouraging thing about PayPal is that its valuation has come down sharply in the past few years. It has a forward PE multiple of 17, down from the five-year average of 50. This decline is because the company is not growing as it used to in the past. Also, it is worth noting that the S&P 500 has a forward PE multiple of 19.9 and is growing at 5%. 

PayPal stock price forecast

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Paypal stock

PYPL chart by TradingView

The daily chart reveals that the PYPL share price has come under pressure for a long time. In this chart, we see that it has continued to bounce at the 200-day moving average. The Average Directional Index (ADX) has pointed downwards, signaling that it has no well-defined trend.

Most importantly, the stock has formed a rising wedge pattern that is shown in green. In price action analysis, wedges are some of the best reversal patterns in the market. Therefore, the outlook for the stock is extremely bearish, which can see it drop to $56, its lowest level on February 8th.

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