3 Reasons to Take a Closer Look at PayPal Stock (PYPL)
After reporting earnings Wednesday afternoon, PayPal stock has jumped nearly 7% on strong growth with more expected.
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Digital payments processor PayPal Holdings Inc. (NASDAQ: PYPL | PYPL Price Prediction) reported fiscal fourth-quarter earnings after U.S. markets closed on Wednesday. PayPal stock traded up about 4% in after-hours trading.
After a good night’s sleep, investors pushed PayPal stock up by around 7% in premarket trading Thursday morning.
Third-quarter results
For its third quarter of fiscal 2023, PayPal reported revenue and earnings above consensus estimates.
| Estimate | Actual | Surprise | |
|---|---|---|---|
| Revenue ($B) | 7.39 | 7.40 | 0.1% |
| Adj EPS | 1.23 | 1.30 | 5.7% |
Compared to the third quarter of last year, revenue was up 8.1% and EPS was up 20.4%.
The headline numbers are good, but looking beyond the headlines reveals at least three good reasons to consider adding PayPal stock to a portfolio.
Revenue growth
The following chart from VizualStocks compares revenue growth among PayPal, Visa Inc. (NYSE: V), and Mastercard Inc. (NYSE: MA).
PayPal’s revenue growth has kept pace with that of the payment industry’s two giants.
But PayPal’s market cap lags, by a lot:
- PayPal market cap: $56.73 billion (at Wednesday’s closing price)
- Mastercard market cap: $354.31 billion
- Visa market cap: $493.59 billion
Over the past 12 months, PayPal revenue totals $28.56 billion to Mastercard’s $9.4 billion and Visa’s $32.65 billion.
Free cash flow yield
This metric is a good measure of the fundamental strength of a company’s performance. It is FCF per share divided by the current share price. As of last night’s close, here’s how PayPal stock stacks up:
- PayPal: 6.4%
- Mastercard: 2.96%
- Visa: 4.1%
Because PayPal does not pay a dividend, the FCF yield depends primarily on share buybacks. When Visa reported quarterly results last week, it announced a new $25 billion buyback program. In fiscal 2022, PayPal repurchased $4.9 billion in stock, Visa repurchased $11.7 billion in stock, and Mastercard bought back $8.75 billion in stock.
Profitability
PayPal’s net income for the past 12 months is $4.1 billion, compared to $17.27 billion for Visa and $19.93 billion at Mastercard. PayPal’s implied market cap should fall between $106 and $120 billion.
Put simply, PayPal gets no investor love.
Contact [email protected] for any questions or corrections.
Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.
He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.
