The past six months have been a windfall for PayPal’s shareholders. The company’s stock price has jumped 41.2%, hitting $62.21 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in PayPal, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think PayPal Will Underperform?
We’re glad investors have benefited from the price increase, but we don’t have much confidence in PayPal. Here are two reasons why there are better opportunities than PYPL, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.
Over the last five years, PayPal grew its revenue at a mediocre 7.4% compounded annual growth rate. This fell short of our benchmark for the financials sector.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
PayPal’s EPS grew at a weak 3.2% compounded annual growth rate over the last five years, lower than its 7.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
We see the value of companies driving economic growth, but in the case of PayPal, we’re out. Following the recent rally, the stock trades at 11× forward P/E (or $62.21 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than PayPal
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