PYPL Stock Warning: Don’t Read Too Much Into Recent Post-Earnings Rally

After declining throughout October, PayPal (NASDAQ:PYPL) stock jolted higher at the start of this month.

The bump was thanks to a well-received quarterly earnings release. PYPL stock zoomed from just over $50 per share, back to the mid-$50s per share, in the days following this release.

In more recent trading days, however, PYPL’s post-earnings rally has started to lose momentum. Shares have leveled off.

Even as the stock has yet to get back on a downward trajectory, I wouldn’t assume that, after holding steady in the mid-$50s, a surge to even higher prices is what comes next.

While showing signs of improvement in its latest numbers, this company is far from out of the woods when it comes to the issues that have kept the stock in steady decline since late 2021.

With this, PayPal’s recent surge may prove to be only temporary.

PYPL Stock a Short-Lived Boost

In the Nov. 1 earnings release, PayPal reported total payment volumes of $387.7 billion, and revenue of $7.4 billion for the quarter ending Sep. 30. These figures increased by 15% and 8%, respectively, compared to the prior year’s quarter, with the revenue figure coming in slightly ahead of sell-side forecasts.

As for earnings, the fintech and payments giant reported GAAP earnings per share of 93 cents. This represented a 19% decline compared to Q3 2022.

Non-GAAP earnings came in a $1.30 per share (a 20% year-over-year increase), beating estimates by 7 cents per share. Investors reacted positively to the latest numbers, as they did to upward revisions to guidance and upbeat comments from newly-appointed CEO Alex Chriss.

Hence, it’s not surprising that PYPL stock rallied by 6.58% on the trading day following earnings (Nov. 2), and rallied again the following trading day. However, as mentioned above, this rally may end not long after it started.

While not for certain, investors may perhaps be taking a second look at the other key performance indicators/recent developments, and realizing that a smooth ride to recovery is not set in stone.

Challenges to a Turnaround Still Remain

Post-earnings, many investors may have concluded that a turnaround is taking shape, and that PayPal is on track to deliver results in line with sell-side forecasts (annual earnings growth of around 12% in both 2024 and 2025).

But while the latest results, recent management changes, and the prospect of cost cutting and share repurchases suggest a continued strengthening of results, several factors call the current bull case for PYPL stock into question. For one, the fact PayPal’s total number of active accounts keeps declining is cause for concern.

Yes, PayPal argues that this customer churn is primarily “minimally engaged” accounts. The company believes that it can make up for it by generating higher revenue from existing accounts. However, as signs of a slowdown in U.S. economic growth emerge, greater monetization of its user base may prove difficult.

That’s not all, for a possible 2024 slowdown/recession. As I argued previously, if the macro picture worsens, it may have a negative affect on PayPal’s payments business, as well as its “buy now, pay later” segment. This could outweigh the benefit of cost reductions and other efforts. In turn, leading to disappointing results in the twelve months ahead.

At the Very Least, Wait for a Pullback

If the risks/uncertainties come off the back burner, and back to top in mind among investors, a shift in sentiment for this stock could soon happen. Instead of the current leaning-bullish stance, investors by-and-large could revert back to a more “on the fence” view of shares.

Although PYPL sports a valuation regarded by many as “cheap” (11 times forward earnings), another spike in uncertainty could always drive a retreat to even cheaper prices.

Irrespective of a reassessment of recent developments, as high interest rates and the threat of a recession still loom over the market, this stock could nonetheless encounter weakness once again.

With this, even if you’re more optimistic than I am about a PYPL stock recovery, you should (at the very least) wait for a pullback. There’s a strong chance one may happen in the immediate future.

PYPL stock earns a D rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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