PayPal is a Turnaround Opportunity Based on Strong Fundamentals
"PayPal has been crushed over the last few years, yet its fundamentals remain strong with leadership in digital payments and robust free cash flow generation. In my 10-year analysis, I used growth assumptions of 4, 6, and 8% and found that despite the current trading price at 59, the discounted valuation yields a low price of 94, a high price of 215, and a middle price of 144. This significant discount to intrinsic value makes it an attractive turnaround play for long-term investors."
Paul argues that despite recent price declines, PayPal's strong market position and cash flow generation support a turnaround thesis. His analysis indicates a low valuation of 94 compared to its current price, making it an appealing long-term buying opportunity for value investors.
PayPal Transitioning to a Broader Commerce Platform with Consistent Growth
"Now, that company is PayPal. And guys, it's a stock I own. But remember, never buy a stock because anybody in the world, I don't care if it's a YouTuber or Warren Buffett, say to buy it. Your job, our job here is to teach you a process and your job is to apply the things you understand to companies you can understand. Now, PayPal is transitioning from a pure payments processor into a broader commerce and financial services platform, driving consistent, albeit not very exciting, revenue growth with digital payments, with Venmo, and with buy now pay later services contributing meaningfully to its volume and earnings. In addition, management has outlined a multi-year plan targeting accelerating transaction margins and earnings per share growth through 2027. In recent weeks, we've seen PayPal announce a strategic partnership with Open AI along with announcing its application for a US banking charter as they look to strengthen their reach and deepen their integration."
The speaker provides a detailed commentary on PayPal, highlighting its transition from a pure payments processor to a broader commerce and financial services platform. He emphasizes PayPal's steady revenue growth backed by digital payments, Venmo, and buy now pay later services, alongside a multi-year plan to accelerate transaction margins and EPS through 2027. Additionally, recent strategic moves, such as a partnership with Open AI and an application for a US banking charter, further bolster its long-term value proposition.
PayPal's bank application highlights new regulatory and lending potential
"Okay. Uh one more. >> PayPal. The ticker is uh PYPL. The shares are up by almost uh 2%. Now uh this comes as the company applied to become a bank in the United States. Uh for some analysts this move is logical because PayPal is already participating in the lending business and some other analysts are just citing a favorable regulatory environment. However, the timeline is uncertain. So to some analysts it could take several [music] years."
PayPal (ticker PYPL) experienced a modest rise of nearly 2% as it applied for a banking charter in the United States. Analysts view the move positively due to PayPal's existing lending activities and a favorable regulatory backdrop, though there is uncertainty regarding the timeline, with some suggesting it could take several years to materialize.
Regulatory Boost Potential for PayPal's Banking Ambitions
"Let's go to PayPal people. Their stock is gaining about one and a half percent to 2%. It's a payments firm. It applied to become a bank in the U.S. You have the administration. They've kind of been loosening those regulatory reins on on fintech companies entering the banking system. So what's going to happen if this is approved? Well, PayPal Bank, it would basically help the firm boost its small business lending. It's a big part of it. They have access to more than 30 billion in loans and capital since 2013, but they also want improved consumer focused finance products. So it's interested in offering customers interest bearing savings account."
The speaker discusses PayPal's strategic move to apply for a banking charter amid a relaxed regulatory environment. The anticipated banking approval could enhance its lending capabilities and broaden consumer finance products, which may act as a catalyst for future growth.
PayPal Banking Charter Could Boost Lending and Consumer Finance
"Let's go to PayPal. Uh PPPL their stock is gaining about one and a half% to 2%. Uh it's a payments firm. applied to become a bank in the US. You have the administration. They've kind of been loosening those regulatory reigns on on fintech companies entering the banking system. So, what's going to happen if this is approved? Well, PayPal Bank, it would basically help the firm boost its small business lending. Um, it's a big part of it. They have access to more than 30 billion in loans and capital since 2013, but they also want to improve consumer focused finance products. So, it's interested in offering customers interestbearing savings account. But we've heard this with crypto firms, right? It comes after a number of them gained preliminary regulatory approval to become banks last week. You had companies like Circle Internet Group, Ripple. Um, aside from crypto, you have Nissan's Motor Financing Arm earlier this year. They applied for the same charter that PayPal is looking to get. Uh, and Japan Sony Group, they've also applied to be a bank. So, we're seeing more of these companies apply to be banks. Interesting. >> All right. And PayPal, why not? I mean, you're already in the payments business."
The insight outlines PayPal's potential upside from obtaining a US banking charter, which could enhance its small business lending and consumer finance offerings. With regulatory easing on fintech banking and industry peers already moving in this direction, the commentary leans bullish on PPPL's near-term prospects.
PayPal's Low 11x P/E and Strong Free Cash Flow Yield Suggest Value Opportunity
"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.
Compelling Free Cash Flow but Risky Buybacks
"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.
PayPal Undervalued Trade Call Based on Attractive Valuation Metrics
"PayPal is trading at a forward price to earnings of 13. This is the lowest the stock has traded for going all the way back to 2019. There have been very brief moments where you've been able to buy this stock at a lower price, but those moments have been rare. Furthermore, it's trading at a forward price to earnings of 13. This is, let's say, it's 1/5th the valuation of SoFi stock. It's, um, 1/20th the valuation of a company like Palanteer or Tesla. It's 1/2 or roughly 1/2 or maybe 40% the value of the average stock in the S&P 500. So this is a cheap valuation regardless of how you measure valuation. I also measure valuation using a proprietary discounted cash flow model. And so, sorry, PayPal stock is trading at a market price of $76 even after this increase. And the intrinsic value per share I calculated is $133. So even in this valuation metric, PayPal stock looks cheap. So across the board, nearly every valuation metric I use and compare, PayPal stock looks cheap. And so when I'm looking at these kinds of performance results for a stock that this cheap makes it a really attractive investment."
The speaker highlights that PayPal (PYPL) is undervalued given its forward P/E ratio of 13, its current market price of $76, and an intrinsic value of $133. With valuation metrics comparing favorably to peers like SoFi, Tesla, and the S&P 500 average, the speaker considers the stock an attractive trade and explicitly supports a long-term buy recommendation.
Mediocre Outlook on PayPal Driven by Buyback Dependency
"So I do not think that PayPal share price is going to rally significantly because so much of its per share profit growth comes from buybacks. I think that PayPal, at least in my opinion, is looking like it's selling for fair value today. Overall, I also think that PayPal is not necessarily the highest quality business that I have ever seen in the market, and therefore I am just again not really interested in PayPal."
The speaker offers a tepid, cautionary view on PayPal, arguing that its earnings per share growth is heavily reliant on buybacks rather than organic improvement. He concludes that the stock, while fairly valued, lacks the quality to generate substantial upside.
Trade Call: Increasing Exposure in PayPal
"So, what stock did I end up putting uh about $52,000 in today. Well, I announced in my private stock group I bought 500 shares of PayPal in one of my private portfolios and then additionally I made a move in the public account. I took down my Adobe position just a little bit about $10,000 and I put uh you know $10,000 into PayPal or just over $10,000 more into PayPal essentially. So, you know, brought my exposure up a little bit in regards to PayPal. I like it, man. I like it. They're doing well."
The speaker details his recent allocation of approximately $52,000 into PayPal, reinforcing his bullish stance by repeatedly affirming it as a buy. The commentary highlights his confidence in PayPal's performance, suggesting continued strong upward trends.