Why PayPal Stock Is a Screaming Buy for the Second Half of 2025
PayPal stock (PYPL) has had a bumpy ride since 2020. The stock more than doubled in 2020 and continued its good run in the first half of 2021. However, PYPL ended that year in the red, meeting the same fate for the next two years. 2024 was a welcome break for PayPal investors as the 'law of averages' finally caught up with the stock, and it gained a respectable 39%, outperforming the S&P 500 Index ($SPX) after three consecutive years of underperformance.
Cut to 2025, and PYPL stock has already lost nearly 20% and is yet again massively underperforming the broader market, which has recovered from its April lows. I see the recent fall in PayPal stock as a good buying opportunity, as we'll explore in this article.
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PayPal started the year on a strong note but fell sharply after its Q4 2024 earnings. While the company posted better-than-expected revenues and profits for the quarter, and its guidance came in ahead of estimates, slowing growth at Braintree, its subsidiary focused on card processing, dampened sentiment.
The tariff chaos did not help, as fintech companies, including Affirm (AFRM) and PayPal, slumped in April amid concerns that tariffs could lead to a recession, hurting their business. Both these stocks have not yet recovered to their 2025 highs, even as tariff worries have greatly (if not fully) subsided.
While these are short-term headwinds, PayPal is facing some structural challenges in the form of higher competition across nearly all its business verticals. For instance, its branded checkout is facing intense competition from Apple Pay (AAPL) and Google Pay (GOOG), while the non-branded business faces competition from companies like Stripe. The P2P business is also facing competition from Zelle and Cash App (XYZ).
The competition has negatively impacted PayPal's topline, which is now growing in single digits. With rising competition, digital payment companies have been feeling pressure on their take rate (the fees they charge for processing the transaction), and PayPal's operating margins have fallen.
While I find corporate turnarounds a cliché, PayPal is a legit turnaround story under the new CEO, Alex Chriss, who is working on profitable growth. The strategy has shown results, and the company has had five consecutive quarters of profitable growth. PayPal has also made a foray into digital advertising, capitalizing on the vast consumer data that it possesses. The company is also using artificial intelligence to personalize experiences for customers.
PayPal is transforming into a 'commerce company' from a mere payment company, and aspires to be a bridge connecting its over 400 million users to the merchants on the platform. During the Investor Day earlier this year, Chriss said that the pivot could help PayPal deliver annual adjusted earnings per share (EPS) growth of over 20% in the future.
The investing thesis for PayPal is three part. The first is the turnaround and transformation, which is a work in progress The initial stages of this turnaround have been promising.
The second is, of course, valuation, as PayPal's current forward price-earnings (P/E) multiple of 13.5x is well below the S&P 500 Index. Also, despite the slowdown, the company's bottom line is still growing, and the P/E-to-growth multiple of 1.13x looks quite attractive.
Finally, PayPal is a free cash flow powerhouse despite all the challenges, and expects to generate between $6 billion-$7 billion of free cash in 2025. The company has been using the bulk of this cash flow to repurchase its shares and intends to spend $6 billion on buybacks this year.
Given PayPal's current market cap of just over $66 billion, the buybacks will theoretically help boost its EPS by high single digits. PayPal's cash engine is not expected to slow down anytime soon, and it intends to use between 70%-80% of its free cash flows toward repurchases over the medium term, which should help propel its EPS growth in low-teens, if not higher.
The company's balance sheet is also quite formidable, and it holds more cash and investments than the debt it owes. Overall, I find PayPal stock a no-brainer at these levels and am adding to my existing position in the company. While it is no longer the kind of growth story it was a few years back, there is a lot of comfort in these valuations, and the turnaround can help lead to a re-rating.
Sell-side analysts also see decent upside in PYPL stock, and its mean target price of $80.50 is 17.4% higher than the June 18 closing price. The overall Street sentiment is mixed, though, and of the 44 analysts covering the stock, 16 have a 'Strong Buy' rating while three rate PYPL as a 'Moderate Buy.' 21 analysts rate PayPal as a 'Hold' while the remaining four rate it as a 'Strong Sell.'
On the date of publication, Mohit Oberoi had a position in: PYPL, AFRM, GOOG, AAPL. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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