The S&P 500 has set one recent all-time high after one other in 2024, but not every stock has participated in the present bull market. Some stocks remain beaten down, well below the highs reached in late 2021 and early 2022.
A few of the firms behind those stocks benefited from the behavior changes ushered in by the COVID-19 pandemic. But as things begin to resemble the way in which things were pre-pandemic, they do not look as attractive. Others, nonetheless, look oversold, and their current valuations don’t reflect their true potential.
One example of the latter is PayPal (NASDAQ: PYPL). PayPal’s share price surged as COVID-19 drove more online and contactless sales. But a few bad quarters and a CEO change led to a large sell-off in shares. The stock currently trades around 81% below the all-time high it reached in mid-2021. Here’s why it might be an important opportunity to purchase up some shares.
It’s already showing signs of a turnaround
Considered one of the largest things weighing on PayPal over the past 12 months was its declining lively account total. Energetic accounts peaked within the fourth quarter of 2022 and experienced 4 consecutive sequential declines during 2023.
But lively accounts increased in the primary quarter, climbing 2 million to achieve 427 million total. While there’s still an extended method to go to get back to where it was at the tip of 2022, the turnaround progress is encouraging.
The largest driver of the lively account decline was churn from inactive accounts in emerging markets within the Latin America and Asia Pacific regions. It’s now growing by adding users who’re spending increasingly more incessantly. Total payment volume was up 14% 12 months over 12 months despite fewer users than this time last 12 months. Transactions per lively account over the past 12 months reached an all-time high of 60.
The virtuous cycle driving strong engagement growth
The growing engagement of PayPal users signals its network advantage. On one side of the network are consumers and on the opposite side are merchants. The huge consumer base using PayPal draws more merchants to just accept the digital wallet and the growing variety of merchants taking PayPal draws more consumers to the platform. A growing variety of merchants also gives existing users more opportunities to make use of PayPal.
There’s good reason for merchants to decide on PayPal, too. Not only does it add one other payment option for around 400 million web shoppers, nevertheless it also makes them more likely to finish a transaction. The corporate reports a 33% increase in checkout conversions when the customer uses PayPal versus one other type of payment.
While PayPal faces competition, none of its competitors has a user base the dimensions of PayPal. That makes it practically indispensable for online merchants.
That said, fierce competition can and has weighed on PayPal’s ability to charge higher fees for merchants. It also pushed the corporate to permit more consumer selection in its default payments, as an alternative of forcing them to pay using methods more lucrative for the corporate (like money balances).
Still, it’s hard to disclaim PayPal’s position because the leading digital wallet, putting it in a major position for the continued secular growth in e-commerce.
The stock is an absolute bargain
The stock currently trades for a forward price-to-earnings ratio below 14x. That is incredibly low, even when you expect competition to eat into its revenue growth and margins.
Management’s updated full-year 2024 guidance calls for mid- to high-single-digit earnings-per-share (EPS) growth. PayPal should give you the chance to drive double-digit revenue growth because it returns to year-over-year lively account growth this 12 months. While non-branded checkout has weighed on its gross margin, it’s cutting costs in other areas, which should lead to stable to growing operating margins. That might mean PayPal exceeds its current full-year outlook.
What’s more, PayPal is aggressively buying back shares at this price. It forecasts $5 billion in free money flow, and management plans to repurchase even greater than $5 billion in shares this 12 months. That gives an extra boost to earnings per share.
Wall Street analysts currently expect PayPal to grow its earnings per share at a compound annual rate of virtually 16% over the subsequent five years consequently of the above aspects. So, with shares trading under 14x earnings, they present an incredible bargain for investors.
Must you invest $1,000 in PayPal straight away?
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Adam Levy has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends PayPal. The Motley Idiot recommends the next options: short June 2024 $67.50 calls on PayPal. The Motley Idiot has a disclosure policy.
1 Incredible Growth Stock Down 81% You will Regret Not Buying on the Dip was originally published by The Motley Idiot