PayPal's Low 11x P/E and Strong Free Cash Flow Yield Suggest Value Opportunity

about 1 month ago

Analyst

"But whenever you have a stock that's been going down for so long and it looks cheap and it's still growing, most people believe that it could potentially be a value trap. And if you look at all the metrics, quarterly revenue growth is accelerating, active accounts are accelerating, payment volumes are accelerating, none of those things are indicating that PayPal is a value trap by any means. In terms of the annual return with PayPal, I'm seeing a 10% free cash flow yield and an average revenue growth of 6%, leading to a 16% annual return from today's price. I personally don't believe the PE ratio of 11 is a trap at all, and the company's fundamentals support a potential multiple expansion that could lead to over a 20% annual return."

The analyst argues that despite negative sentiment and concerns over a potential value trap, PayPal's improving metrics—accelerating revenue growth, increasing active accounts, and a robust 10% free cash flow yield—justify its low 11x P/E ratio. He estimates a 16% annual return from the current price, with additional upside if multiple expansion occurs, and notes potential acquisition interest as a future catalyst.

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