PayPal Stock: Is It A Buy Right Now?

PayPal (PYPL) is the largest digital platform that provides money transfer services. The fast-growing company remains one of the high-profile stocks in today’s stock market. But is PayPal stock a buy in the current stock market rally?

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PayPal’s fourth-quarter earnings results are due out Feb. 9 after the market closes. The company is expected to earn $1.20 a share on sales of $7.38 billion.

PayPal Stock Fundamental Analysis: Earnings Decline In 2022

PayPal boasts a consistent track record of earnings and sales growth, stretching back to at least 2010. In that year, it earned a mere 29 cents per share. In 2021, the firm’s earnings grew 18% to $4.60 a share. In 2022, the company’s EPS is expected to decline 11% to $4.08 a share before rising 17% in 2023.

PayPal reported its third-quarter earnings results on Nov. 3. In response, PayPal shares fell nearly 2%. PayPal earnings for the quarter ended Sept. 30 were $1.08 per share on an adjusted basis, down 2% from a year earlier. The e-commerce company said revenue rose 11% to $6.85 billion.

PYPL stock analysts expected earnings of 96 cents a share on revenue of $6.81 billion. A year earlier, PayPal earned $1.11 a share on sales of $6.18 billion.

As a result of the company’s recent earnings weakness, PayPal’s EPS Rating has slipped to a 78 out of a highest-possible 99. The EPS Rating measures a company’s ability to grow profits year over year, using the most recent two quarters and the past three to five years of earnings growth.

The SMR Rating, meanwhile, highlights a company’s sales, profit margins and return on equity. Such metrics offer significant insight into a company’s fundamental strength. Driven by double-digit sales in PayPal’s latest quarter, 24% annual pretax margin and 26% annual ROE in 2021, the SMR Rating is an A.

According to the IBD Stock Checkup, PayPal stock shows a weak 50 out of a perfect 99 IBD Composite Rating. The Composite Rating helps investors easily measure a stock’s fundamental and technical metrics.

PayPal Stock News

PayPal continues to battle with Block (SQ) in the cryptocurrency space. The two payment companies are marketing apps that let shoppers get discounts, make installments and buy cryptocurrencies.

PayPal’s Venmo and the Square Cash App started off as person-to-person money-transfer services for family members and friends. Now they’ve evolved into broad consumer financial services apps fueling growth for these leaders in the burgeoning field of digital payments.

In late 2020, PayPal launched a cryptocurrency trading service, allowing clients to buy and sell Bitcoin. In addition, PayPal customers are able to use cryptocurrencies to shop at the 28 million merchants on its network, which started in 2021.

On April 20, 2021, PayPal announced crypto on Venmo. The new feature allows customers to use these three types of cryptocurrency, plus Bitcoin Cash, to view crypto trends and make transactions.

On Sept. 20, 2021, Susquehanna analyst James Friedman downgraded PYPL stock to neutral from buy. The analyst believes that more of PayPal’s growth will come from its Braintree unit — which includes the Venmo payment service — but the problem for PayPal stock is unit’s low profit margins.

“Braintree is quickly gaining share within PYPL’s total payment volume creating negative leverage from mix,” Friedman said in a report to clients.

He added: “As Braintree is likely to continue driving PYPL as a whole, its unit economics may drag on PYPL consolidated results. Consensus may underestimate the yield and transaction expense pressure which PYPL may experience. With the risk of ‘negative leverage’ from this mix shift — and the stock up 36% off its lows — we are moving to neutral.”

Is PYPL Stock A Buy Right Now?

PayPal stock dropped more than 1% Friday, trading at 85.85. On Dec. 22, the stock hit a 52-week low at 66.39.

While shares are rebounding from their recent lows, they remain sharply off their 52-week high. Meanwhile, the stock is back above its long-term 200-day line. There is no new base in sight, according to IBD MarketSmith chart analysis, so the stock is not a buy right now.

For more leading stocks and approaching buy points, check out these IBD Stock Lists, like the Stocks Near Buy Zones. To see the current stock market trend, check out IBD’s signature daily analysis, The Big Picture.

Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the stock market.

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