PayPal has retreated more than 80% since its peak in 2021, when it was priced over $300. It is now approaching $50, the lowest point since 2017. This significant decline is attributed to slowing revenue growth and concerns about increased competition. The rising competition poses a risk to PayPal’s dominance as a global payment system and, consequently, has led to a decrease in fees and revenue.
Nevertheless, PayPal is making efforts to change this gloomy outlook. The newly appointed CEO, Alex Criss, with an impressive 19-year career at Intuit, brings hope to investors. With this change in leadership and the presence of a strong CEO, PayPal must devise a new long-term strategy.
Regarding valuation, the substantial decline in PayPal’s stock presents an opportunity for both traders and investors. Price-to-earnings and price-to-sales ratios are currently at historically low levels. Bloomberg estimates that the 12-month price-to-earnings ratio has fallen to around 10x. Even after recent price target cuts, the median analyst price estimate for the next year is $83, indicating a potential increase of nearly 50%. When looking at the two-year average, factoring in the price relative to the blended price-to-earnings ratio, the upside potential could reach as high as $87.26.
However, the downtrend is still ongoing, and as the US markets grapple with rising rates, yields, and increased geopolitical risks, PayPal is retreating with increasing volume. The surge in volume may be a cause for concern at the moment, but if a clear bottom formation emerges in the next few weeks, this situation could change. There appears to be a potential wedge formation developing within the overall trend channel. The lower line of this wedge is currently around $54, and both $50 and $54 could serve as possible support levels to monitor for now. A break to the downside might lead the price to drop as low as $42, which is the current lower boundary of the channel.
Should a reversal occur from the lower line of the wedge or the lower line of the trend channel, this could present a cautious buying opportunity for the medium to long term, as the current valuation of the stock appears advantageous. Nevertheless, it’s essential to remember that there is a reason for the more than 80% decline in value, and the overall trend is still pointing south. Therefore, any buying attempts should be made with appropriate risk control, as markets can sometimes succumb to panic even after experiencing such massive retreats. It’s worth noting that PayPal is expected to release its earnings report on the first day of November.
