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PayPal Holdings, Inc. is a widely recognized player in the fintech industry, with strong earnings and positive second-quarter results, leading to a potential undervalued status for the stock; while the short-term sentiment is bearish, the long-term prospects seem promising, making it a Hold in the short term and a potential Buy in the long term. (August 3, 2023)
Fundamental Analysis
PayPal Holdings, Inc. (Ticker: PYPL) trades on the NASDAQ exchange and is a widely recognized player in the financial technology (fintech) industry. With a market capitalization of $71.61 billion, the company is quite substantial. Despite a recent downturn in its stock price, the company's earnings per share (EPS) remains strong at $2.32, with a PE ratio of 27.66, slightly above the average for the sector, indicating slightly higher than average earnings growth expectations from the market.
The company's recent second-quarter results displayed growing transaction and other value-added services' revenues. This is a positive sign and shows that the business is expanding. However, it's important to mention that PayPal missed its margin estimates for the same period, which might have prompted the stock's recent dip.
Regarding the future earning estimates, analysts have set a high target of $290, a low target of $72, a consensus target of $128.41, and a median target of $120. Despite the recent miss on margin estimates, the fact that the high target is substantially greater than the current price ($64.18 as of August 3, 2023) indicates the analysts see potential for considerable growth.
Technical Analysis
On the technical front, the stock is currently trading below its 50-day moving average ($67.79) and 200-day moving average ($74.17), showing a short term bearish trend. This is further confirmed by the RSI at 32, indicating that the stock is nearing oversold territory, indicating a \potential reversal in the bearish sentiment. The MACD value of 2.77 may also signal an upcoming positive trend.
The stock experienced a significant drop of 12.32% in the last trading session, with the volume of 50.69 million shares, which is considerably higher than the average daily volume of 18.68 million shares. This heightened activity might reflect investor concerns about the company’s recent earnings report.
Outlook and Recommendation
Using a discounted cash flow model, the intrinsic value of PYPL is estimated to be $70.90 per share. This value is higher than the current trading price and represents a possible undervalued status for the stock.
Considering the large market cap of PayPal, the strong EPS, and the positive second-quarter results in terms of revenues, the stock remains a solid player in the fintech industry. The current bearish sentiment reflected in the stock’s performance appears to be closely tied to the missed margin estimates. However, given the positive earnings figures, the enormous addressable market in the gig economy, and the expectation of a potential upside as seen in the analysts' price targets, the company's long-term prospects seem promising.
In conclusion, based on the fundamental and technical analysis, PYPL is a Hold in the short term due to the current bearish sentiment and might be a Buy in the long term as market sentiment improves and fundamentals catch-up. This conclusion is aligned with the recent news about the company and the industry, highlighting the upside potential of PayPal and its position as a major player in the fintech industry.
