PayPal: Potential Rebound with Call Options and Valuation Reset

about 20 hours ago

"The first one very hated stock is PayPal. PayPal is down 65% over the last 5 years. The sentiment is so bad on PayPal that its now trading at 12 times earnings, compared to trading at 60 times a few years ago. Yet, if you look at the active accounts, they have been growing every single quarter, by about 2 million each time, and total payment volume has been increasing almost every quarter. The decline in revenue growth from 9% down to 1% was temporary due to unprofitable contracts with Brainree, which the CEO cancelled to focus on profitable growth. Now, trading at a 12% free cash flow yield (roughly 10% after stock-based compensation), its a high margin business that can buy back 10% of its shares annually. I believe the potential for a massive change in sentiment in 2026 is huge."

The speaker outlines a contrarian opportunity in PayPal, emphasizing its drastic valuation compression from 60x to 12x earnings. Despite negative sentiment, key metrics such as growing active accounts and consistent payment volume indicate underlying strength. The temporary revenue slowdown due to Brainree contracts has ended and the strong free cash flow yield supports robust share buybacks, positioning PayPal for a sentiment reversal in 2026.

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