PayPal Stocks: Bull vs. Bear

Against high levels of inflation, rising interest rates and other macroeconomic pressures, fintech stocks have been crushed this year. Even category-leading companies like it PayPal Holdings (PYPL -2.96%) feeling the pressure. The company’s share price has fallen 54% so far this year and is trading down about 72% from the high it reached in the summer of 2021.

Will PayPal continue to be a big winner for investors buying shares at today’s prices, or is the company on track to continue to underperform relative to the broader market? Let’s explore the bull and bear cases for this fintech stock.

Image source: Getty Images.

Bull case: PayPal has growth potential and looks attractively valued

PayPal is a leading provider of fintech services, but macroeconomic pressures affecting the industry and bearish momentum for the broader market have pressured its share price recently. For long-term investors, the good news is that the core business continues to look quite strong – and the company’s share price is down to attractive levels.

Between its namesake Venmo and Braintree, the company established strong brands in digital wallets, payment processing and e-commerce payments. Despite already having massive scale, PayPal continues to grow its active user base at a solid clip. The company reported 429 million active users at the end of the second quarter, up 6% year-over-year and roughly 40% from the pre-pandemic quarter of 2019. Management expects to end the year with 10 million net new active accounts despite reduced expenses on marketing and on running user additions.

PayPal guided for sales growth of 11% this year on a currency-adjusted basis, and it still expects to record more than $5 billion in free cash flow despite the more challenging macroeconomic backdrop. The company has strong earnings growth potential thanks to solid sales growth prospects, share buybacks and management’s new emphasis on reducing costs and improving margins.

PYPL PE Ratio (Forward) data by YCharts

The company’s forward price-to-earnings ratio of 21 is well below where it has been for most of the past couple of years, and shares look attractively valued for long-term investors. With a market capitalization of about $99.5 billion, PayPal also trades for less than 20 times this year’s expected free cash flow. The fintech leader also has a strong balance sheet with its net cash position of $5 billion.

The digital payments market appears poised for long-term growth, and PayPal looks set to benefit as commerce increasingly moves to online channels.

Bear case: Competition and macroeconomic trends create risk

While PayPal is well established in its corners of the fintech services industry, it also faces stiff competition. Dedicated fintech and financial services rivals included Block and JPMorgan Chase have competing payment offers that could take market share or put pressure on PayPal’s margins. The company also faces competition from apple and Alphabetleading mobile platform holders who have rolled out their own digital wallets and payment services.

In addition to the highly competitive industry landscape, continued macroeconomic headwinds are a key risk factor for PayPal. If the financial conditions worsen, the company may fall significantly short of the targets it has set for this year, and growth may become more difficult to deliver going forward. High levels of inflation, rising interest rates or a prolonged recession can each have a negative impact on a company’s user growth and average revenue per user – and stock performance can suffer at the same time.

So while digital payments and other fintech service categories appear to be benefiting from secular growth trends, there are still risk factors that could cause PayPal stock to post weak results. The fintech leader’s valuation may look attractive in the context of the company’s long-term growth potential, but investors should also consider factors that could lead to weak development for the share.

Should You Buy PayPal Stock Today?

Even after big sales, PayPal still has a growth-dependent valuation, and the stock may not be a good fit for investors who see competitive and macroeconomic pressures severely limiting upside potential. On the other hand, PayPal is a great company with promising long-term growth potential, a strong financial foundation, and a collection of services that will likely continue to see strong engagement despite some headwinds at the moment. For investors willing to embrace the potential for near-term volatility, I think PayPal stock is a worthwhile buy.