PayPal Stock Is Still a Buy Amid Possible Rebound
The last time I wrote about PayPal (NASDAQ:PYPL) stock, it was trading at $97 and I recommended it as a buy. If you made the move, you would be sitting on potential gains of 25% (PYPL stock trades at $121 today). Now, PYPL is ready for a rebound. If you missed the opportunity to bag it below $100, it’s not too late to tap into potential upside.
With all of that said, here’s a closer look at why you should keep an eye on PayPal stock moving forward.
PayPal: Free Cash Flow Will Help With Acquisitions
PayPal went public two decades ago and it has consistently grown over the years. It has become a global company that offers several financial services to customers. However, due to the Russia-Ukraine war and the broader tech selloff in 2022, PYPL stock has suffered more than it should.
But for investors, now is the time to strike. The company reported promising fundamentals in the fourth quarter, but the dip in new active users hammered PayPal stock. Despite this decline in new users, the number of payment transactions is growing. PayPal has proved time and again that it can invest in the business and continue to generate higher returns.
PayPal has an impressive balance sheet and plenty of cash to use for acquisitions. The company does have debt, but it also has $1.6 billion in free cash flow. PayPal is using the cash to revamp its application and work on new features and apps to cater to the changing needs of its users. With total payment volumes consistently growing, we will continue to see improvements in the operating cash flow. In the fourth quarter, PayPal generated 22 cents of free cash flow for every $1 of revenue generated.
PayPal will be able to use the cash to bring new features to its app while investing in other apps and technologies that can help grow its business.
A contributor to the positive operating cash flow is PayPal’s “Buy Now, Pay Later” (BNPL) service. It is already a giant in the finance industry and with BNPL gaining popularity, the company reported record sales during Black Friday. It saw a 400% year-over-year rise in the volume and this is only the beginning.
The company has acquired Paidy, a Japanese BNPL firm for $2.7 billion. BNPL has seen a boom over the past few months and PayPal is trying its best to make the most of it, this acquisition will bolster the company’s earnings.
The Bottom Line on PYPL Stock
Last year was a strong one for PayPal. Admittedly, it may take some time for the company to hit such massive numbers again. However, investors should stop judging the company based on 2021 and look at the massive future potential it holds.
Lisa Ellis, a MoffettNathanson analyst has a buy rating for the stock with a price target of $190. Ellis believes the current share level provides a good entry point in the e-commerce play.
PayPal could become a solid player in the industry and it is offering some of the best services that are in demand today. E-commerce is here to stay and BNPL will become the future of shopping –this is ultimately where PayPal could make the most impact.
We will see a solid bottom line this year, so hold on to PYPL stock. And if you are thinking about investing in it, now is the time to make the move.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
