PayPal Holdings (PYPL 0.34%) stock closed out 2022 with a negative 62% return. Suffice it to say shareholders have not been pleased with the company as it has sputtered following an early pandemic boom in online consumer activity. 

This new year might not be much better, at least not at the start. Reports indicate the recently wrapped-up holiday shopping season was roughly flat compared to the year prior.

Between the global economy reopening from pandemic restrictions and hot inflation, consumers are moderating their spending. That doesn't bode well for PayPal's progress. Can things take a turn for the better in 2023?

PayPal strikes a cautious tone

In stark contrast with management's rosy aspirations in 2021, PayPal management became more cautious lately. At a recent industry conference, CEO Daniel Schulman said that "as you go into 2023, there's no reason to think it's going to get better" when referencing recent reports that global e-commerce likely didn't grow year over year in November and December 2022.

Given this is the most important period of the year for retailers and a busy period for PayPal, that near-term outlook doesn't inspire much confidence.

In spite of this, Schulman did say PayPal is on track to grow revenue by 9% year over year in the fourth quarter of 2022. The management team at the beaten-down digital payments company has done an about-face from the early pandemic boomtime period and is now "focused on the things it can control."

Namely, that means its highest-priority growth initiatives (its online merchant payments platform, and onboarding consumers to its digital wallets like Venmo, for example) and controlling expenses.

As for expenses, PayPal had said it would work on getting more efficient and remove $900 million in operating costs in 2022 and an additional $1.3 billion in 2023. Schulman says that plan is also running ahead of schedule.

Is PayPal stock cheap enough to warrant a buy?

The average Wall Street analyst is predicting PayPal grows revenue at about a 10% rate in 2023. Given the recent commentary regarding a weak consumer due to inflation and a possible recession this year, I believe 10% top-line growth is a bit too optimistic at this point.

To allow for a better margin of safety, I'll say PayPal revenue winds up flat in 2023, dragged down by weakening consumer spending and headwinds from a strong U.S. dollar (which lowers the value of international revenue).

That being said, PayPal could still grow its earnings even if revenue growth sputters out, thanks to the company getting more serious about cost-cutting. Unlike a lot of other software-based businesses out there, PayPal has been able to flip the switch on its elevated spending to raise profit margins -- albeit a bit slow to the punch last year as it became apparent the e-commerce boom was over.

In the third quarter of 2022, the last reported quarter as of this writing, earnings per share rallied 26% compared to last year (helped by gains in the company's investment portfolio and a stock repurchase program). Free cash flow rocketed 37% higher, which helped fuel the $939 million in share repurchases in the third quarter alone (currently 1.2% of the current market cap).

By certain metrics (a trailing-12-month price-to-earnings ratio of 36), PayPal still isn't cheap -- although the dip in earnings this year is due to some one-time expenses. If cost-cutting doesn't offset economic weakness in 2023, PayPal stock could be in for another rough go.

However, PayPal trades for less than 15 times free cash flow, a far more reasonable valuation for a company facing strong headwinds right now.  

Based on trailing 12-month free cash flow per share of $4.84 and expected free-cash-flow growth of 5% for the next five years (dropping to 3% thereafter), PayPal is fairly valued right now. Any growth over and above that makes this stock a value.  

The balance sheet is also worth mentioning, with $10.8 billion in cash and short-term investments, another $5.2 billion in long-term investments, and debt of $10.2 billion. Though the near-term outlook is ugly at the moment, digital payments and financial services remain a secular growth trend. Eventually, I expect PayPal can reestablish robust sales growth.

I'm going to go out on a thin limb here (given heightened 2023 uncertainty) and say PayPal could be a timely buy right now. The company is outpacing the growth of the e-commerce industry that propelled it temporarily higher in 2020 and 2021, it's highly profitable, and it has a plan to focus in on the main drivers of its long-term profitable expansion. Expect plenty of bumps in the road from this point, but I believe PayPal is still a quality business due for some relief at some point in 2023.