PayPal Stock: Don’t Get Shaken Out of This Value-tastic Trade
It’s interesting how news about one company can affect a range of other businesses. A perfect example happened not long ago, when PayPal (NASDAQ:PYPL) stock dropped even though there wasn’t any terrible news about the company. This is fine, though, as it just opened up a window of opportunity for value seekers to invest in PayPal.
Granted, there is some uncertainty surrounding PayPal’s CEO transition and competition in the payments space from Apple (NASDAQ:AAPL). Regarding the first point, PayPal’s investors need to be patient, as executive-level transitions take some time and the anxiety will pass. As for Apple, I’ll explain how PayPal and Apple are actually working together to make payments easier for customers.
PYPL Stock Slides Into the Buy Zone
It’s been frustrating, no doubt, for investors to watch PYPL stock to decline since February. However, there’s no need to lose faith. If you liked the stock at $87 in February, then you should like it even more at its current price.
After all, the data suggests that PayPal’s valuation is quite reasonable. The company’s trailing-12-month price-to-earnings (P/E) ratio of 14.4x is substantially lower than PayPal’s five-year average P/E ratio of 53.58x.
A specific event, which wasn’t precipitated by PayPal, prompted some panic and caused the PYPL stock price to fall recently — but I’ll get to that in a moment. First, I wanted to point out that even if PayPal and Apple are competitors in some ways, they’re also working together.
Here’s the rundown. Reportedly, PayPal’s customers can now add “eligible PayPal and Venmo credit or debit cards to Apple Wallet“. There’s a convenience factor here as PayPal and Venmo users can make payments via an iPhone or Apple Watch.
Furthermore, PayPal and Venmo users who added their cards to Apple Wallet can then use Apple Pay on an iPhone, an iPad or a Mac. It just goes to show that rivals in the payments space, like PayPal and Apple, can serve customers better and create a win-win situation by working together.
Fright in France Puts Pressure on PayPal
So, here’s the event that prompted fear on Wall Street about fintech companies like PayPal. After hearing this, you may be shocked at how irrational and panicky some financial traders can be.
On Oct. 25, Visa (NYSE:V) reported quarterly results indicating robust international travel and cross-border payments volume. Yet, the U.S. stock market decided to ignore this green flag.
Instead, they focused on Worldline, a French payments company that’s not even listed on a major U.S. stock exchange. Worldline released its financial results the same day that Visa did, and slashed its full-year financial guidance.
Worldline stock dropped 59% in Paris, and the company warned investors about the challenging macroeconomic conditions in Europe and especially in Germany. Among the ripple effects was a selloff in U.S. payment stocks, including PYPL stock.
Daniel O’Regan, a managing director at Mizuho Secuirites, attributed the share-price decline to “a few things.” These included the “continued Worldline hangover, fear of more consumer slowing” and “competitive threats from Apple as it gets bigger in the buy-now-pay later space.”
As I’ve explained, I believe there’s room for PayPal and Apple to coexist and even collaborate to the benefit of the customers. Moreover, Visa’s results paint a different, less bleak picture of the international payments space.
Mizuho Securities analyst Dan Dolev wrote that the U.S. stock reaction to the Worldline warning was overblown. I tend to concur, and I feel it’s irrational for the market to punish PayPal, which doesn’t generate most of its revenue from Europe.
PYPL Stock: Buy the Dips and Hold On for Years
It’s a positive sign that Apple is willing to work with PayPal. Sure, they’ll continue to compete, but the two companies can also complement each other in some ways.
Meanwhile, the Worldline warning shouldn’t scare PayPal’s investors into panic-selling their shares. PayPal has survived international challenges before. Plus, the company’s CEO transition is a temporary concern. In the long run, the new leadership could bring new growth opportunities to PayPal.
So, don’t let the headlines in the financial press frighten you. PayPal is here to stay, and now is a great time to buy PYPL stock. It’s trading substantially below its February peak price, so feel free to buy some PayPal shares while they’re still cheap.
On the date of publication, David Moadel 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.
