Compelling Free Cash Flow but Risky Buybacks

2 months ago

Sven Carlin, Ph.D.

"I look at the free cash flow 6 billion they are using all that money six billion to buy back stocks 1 billion just capex earnings per share 7 to 10% growth this looks stellar from a value investing perspective the P ratio is 13 if just adjust to market valuation that's just a 2x quickly even more than the 52% return however when you spend money on buybacks that assume that the business will last forever and cash flows will keep growing, you might not want to let management do that. But then, with massive stock-based compensation and selling of stocks, the outlook for me is still too risky. It's more of a bet on whether the management's strategy will actually create sustainable value."

The speaker highlights PayPal's robust free cash flow and attractive valuation metrics, noting its 6 billion in free cash flow and a P ratio of 13 suggest potential upside. However, he expresses concerns about management's heavy reliance on buybacks and significant stock-based compensation, which he believes introduces considerable risk. Overall, while the numbers look appealing from a value perspective, the risks inherent in management's strategy make the stock a risky, uncertain bet.

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