3 reasons why PayPal stock is a smart investment now

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Written on Aug 20, 2024

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Paypal's stock is poised for growth, breaking out of a year-long accumulation zone.
Strong cash flows and buybacks signal financial stability that should reward investors soon.
Recent technical breakout and new CEO's strategies make it an attractive buy for investors.

PayPal Holdings Inc. (NASDAQ: PYPL) is positioning itself as a compelling investment opportunity despite facing market challenges.

After over a year of trading in a consolidation phase, the stock is showing signs of recovery, driven by strategic moves and robust financial metrics.

The company’s latest announcement—integrating ‘Fastlane by PayPal’ into Adyen’s platform—illustrates its commitment to enhancing user experience and revitalizing shareholder value. Here are three reasons why PayPal stock is worth considering now.

PayPal’s brand strength and potential for expansion

PayPal remains a dominant force in the online payments industry.

Although the stock currently trades at a price-to-earnings (P/E) ratio of 17, recent leadership changes have set the stage for a turnaround.

The new CEO, Alex Chriss, is spearheading efforts to rejuvenate the company and restore its market position.

Despite facing competition from newer entrants, PayPal has maintained steady earnings growth.

Over the past five years, the company has achieved a 14.52% annualized growth rate in earnings per share (EPS), with a 17.28% growth rate over the past decade.

If PayPal continues to expand its earnings and the market reassesses its valuation, significant upside potential exists for investors.

PayPal’s free cash flow (FCF) is a critical asset, with a notable increase from $2.8 billion to $6.5 billion per share over the last five years.

This growth in FCF substantially outpaces the rise in stock-based compensation (SBC), which increased from $1.02 billion to $1.43 billion in the same period.

The company has used its strong cash flow to execute aggressive share buybacks, a strategy likely to benefit shareholders by increasing the value of remaining shares.

Furthermore, PayPal’s $13.6 billion in cash and short-term investments comfortably outweigh its $12.9 billion debt, indicating sound financial health.

Paypal’s technical breakout signals potential upside

Recent technical analysis suggests a promising shift in PayPal’s stock.

After trading within a defined range for an extended period, the stock has broken through key resistance levels.

This breakout, accompanied by a 3% increase in share price on above-average volume, indicates renewed investor interest and potential for further gains.

Source: TradingView

The technical shift aligns with the company’s strategic efforts and strong financial performance, suggesting that now might be an opportune time for investors to consider entering the stock.

As the company continues to navigate market challenges and execute its turnaround strategy, investors could see significant rewards from a well-timed entry into PayPal stock. With solid fundamentals and positive technical indicators, PayPal stands out as a promising investment opportunity.