Growth stock discounts are usually limited to two methods. Invest before it becomes a growth stock. Second, invest when the market doubts its growth stock status.
PayPal (NASDAQ:PYPL) stock is demonstrating the second scenario. High sales growth kept the shares at a premium for years. Over the previous three years, the shares have plunged 79% peak-to-trough. This is your second chance to acquire a blue-chip growth stock.
There are several reasons to despise PayPal stock. The biggest is a growth downturn. Since leaving eBay in 2015, PayPal's income has climbed 15% yearly. But after 2022, sales has barely climbed 8% to 10% annually. This large growth deceleration has pushed down the stock's value. PayPal stock had a price-to-sales ratio of 15 in 2020, when growth was above 20%. Shares trade at 2.3 times sales today.
PayPal's revenue growth rates haven't fallen as much as its value multiple, showing the market has punished the firm. This is justified. Revenue growth is excellent, but some fear it will turn negative this year. PayPal's revenue depends on users. Add new users or encourage existing ones more active on the platform to enhance revenue.
PayPal has substantial headwinds on the first front. In the first quarter of 2023, the company's user count declined after decades of expansion. Reduced user numbers will strain the company's payment volumes, lowering revenue and profits.
PayPal is doing well at persuading existing users to use its platform more. In 2023, PayPal transactions per active account increased 14%, increasing the number of transactions by 12%. Although PayPal is losing users, its existing users are using it more. PayPal stock is a buy today because of this underlying reality.
You should focus on increased payment activity from existing PayPal users rather than the market's anxiety over dwindling users. PayPal's investments in new technologies and services should keep revenue growth near double digits for years.
For instance, the corporation introduced six new growth-boosting technology. Management may have overhyped some of these advances, such as its mobile app revamp and a new approach for firms to present their profiles, but one should thrill investors. The feature is Fastlane
About 25% of global e-commerce transactions are processed via PayPal. That gives the corporation more data than most competitors. PayPal may recognize a customer during an online store's checkout. Fastlane uses this data to let buyers checkout without entering payment information. PayPal claims 40% faster checkouts.
Fastlane has sustained PayPal's revenue growth. With fierce payments sector competition, PayPal is unlikely to recover its user loss. However, the corporation may more than counter the negative pressure by encouraging existing users to use its services more. Although the company's user base has been dropping for over a year, income has climbed due to higher user activity.
Remember that PayPal is quite profitable. The shares are cheaper than the market at 16 times earnings. At above 6% free cash flow yield, they trade. PayPal stock is still growing despite market perception. Now, investors may buy in for an unparalleled price.
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