PayPal stock just lost a crucial support: is it a bargain or a value trap?
PayPal stock price continued its strong downward trend this week as it plunged to the lowest level since November 2023. It lost a crucial support level as sellers remained in control and the short interest rose to 4.8%.
PayPal has become a fallen angel
PayPal stock price has crashed in the past few years, mirroring the performance of other fintech companies. For example, Block, formerly known as Square, was trading at $62, down sharply from the pandemic high of $288.
Similarly, Fiserv stock dropped to $64.50 from last year’s high of $238, while Remitly has slumped to $13 from the all-time high of $53.
PayPal stock price has crashed as investors have remained concerned about its revenue growth across its branded and unbranded checkout businesses.
PayPal’s branded business involves checking out by clicking the PayPal button, while its unbranded business largely revolves around Braintree, the business it acquired in 2013.
These businesses have come under pressure in the past few years, even as the volume of e-commerce transactions has jumped sharply. The main issue is that competition has continued rising, with buy now, pay later (BNPL) companies like Affirm, Klarna, and AfterPay taking a substantial market share.
Many PayPal users have also shunned it because of its substantial fees, which average between 2% and 4%.
Analysts believe that some of these customers will move to stablecoins like PayPal USD (PYUSD), Ripple USD (RLUSD), Tether (USDT), and USDC. These stablecoins normally charge pennies per transaction and are usually instant.
All these issues have made PayPal a slow-growing company. Data compiled by Yahoo Finance shows that the average estimate among investors is that the upcoming earnings will show that its revenue rose to $8.79 billion in the fourth quarter, up by 5% YoY.
That revenue will bring its annual figure to $33.27 billion, up by 4.65% YoY. PayPal is also expected to make $35 billion this year and an earnings-per-share (EPS) of $5.76.
PayPal has become a bargain, but this could be a value trap
The company’s slow growth has made it an undervalued company. Data compiled by Seeking Alpha shows that the non-GaaP forward price-to-earnings (PE) ratio has fallen to 10, much lower than the five-year average of 23. It is also lower than the forward S&P 500 ratio of 22 and the sector median of 11.5.
The forward PE ratio based on the GaaP metric stands at 11, also lower than the sector median of 12.
PayPal is taking measures to boost its stock. For example, it has now started to deploy its cash to paying dividends to its shareholders, with the yield being at 0.85%.
The company has also repurchased stock worth billions of dollars over time. As a result, the number of outstanding shares has been in a strong downward trend, moving from 1.17 billion in 2021 to the current 971 million.
Share repurchases are a sign that the management believes that the stock is cheap and is a way for the company to boost the earnings per share.
While all these activities are good for the company, they mean that it has moved from being a growth company to a value one. There are also concerns that the company’s cheap valuation makes it a value trap.
PayPal stock price technical analysis
The daily timeframe chart shows that the PYPL stock price has been in a strong downward trend after peaking at $79.43 in July last year.
It dropped below the important support level at $55.72, its lowest level in April last year. Losing that support level was important as it confirmed the bearish outlook.
The stock remains below the 50-day and 100-day Exponential Moving Averages (EMA), while the Relative Strength Index and the MACD have continued to move downwards.
Therefore, the most likely scenario is where the stock continues falling, with the next key support level being at $50 followed by the next psychological level at $45.
The post PayPal stock just lost a crucial support: is it a bargain or a value trap? appeared first on Invezz