Please ensure Javascript is enabled for purposes of website accessibility

Is Now the Right Time to Invest in PayPal?

By Vandita Jadeja - Oct 10, 2019 at 4:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

PayPal's share price has been rising, and strong fundamentals make the company's long-term prospects look appealing.

The world is moving away from cash and toward digital payments, and PayPal Holdings(PYPL 0.20%) share price has been rising in the process. The stock has ridden this consumer sea change to a more than 200% gain from November 2017 to July 2019, as compared with the S&P 500's gain of 35%. 

Second-quarter earnings showed lower full-year revenue than had been forecast ($4.32 billion actual, vs. $4.33 billion predicted), and the stock price fell 15% on the news. Management blamed a delay in the launch of new services with strategic partners for the decline. Currency exchange effects have also played a significant negative role.

Credit cards and cash next to a shopping cart button on a keyboard

Image Source: Getty Images.

You can get an easy read on PayPal's health by looking at just a few metrics, all of which were up year-over-year: payment transactions (up 9.2%), active accounts (17.2%), total payment volume (23.6%), and engagement, or the number of app downloads (27.8%).  

PayPal vs the S&P, january through october 2019

Image Source: YCharts.

So is now the right time to buy?

If you're a long-term investor, you can be rest assured that PayPal is a stable business and that its stock price will rise over the long term. One of the main drivers for the company has been Venmo, a peer-to-peer payments app that's highly popular with young adults. Venmo, which offers an easy way to transfer money with a Facebook-like feed,  enjoyed torrid growth in the second quarter, with a total payment increase of 70% year over year to $24 billion. That said, Venmo is not yet profitable, as PayPal is just beginning to monetize the platform. It does provide a very strong user base, which is a path to future growth. 

The balance sheet shows $1.04 billion in free cash flow and $10.7 billion in cash and investments, two of which include $500 million in Uber Technologies (UBER -1.71%) and $750 million in a partnership with Latin American company MercadoLibre (MELI -2.98%). Both of these partnerships work in PayPal's favor by providing access to more than 300 million users across 60 countries. However, Uber's inability to make money cost PayPal $228 million in the quarter (a drop of 34%). The value of the MercadoLibre investment dropped 10%. 

PayPal's long-term fundamentals are intact, and there is huge room for growth. This short-term dip in price -- mostly due to temporary factors -- looks like a good opportunity for investors. In terms of financial performance, growth, and users, the business remains as strong as ever, with a gross profit margin of 45.1%, operating margin of 14.1%, and net profit margin of 15.4%. Over the next year, analysts expect the stock to move to $128 from its current $102.

PayPal will continue to benefit from the rise in online shopping, with impressive increases in the number of transactions and new accounts just over the past year. Competitive forces may move the stock price from moment to moment, but over the long term its future looks clear. 

Vandita Jadeja has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends MercadoLibre and PayPal Holdings. The Motley Fool has the following options: short October 2019 $97 calls on PayPal Holdings. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$99.11 (0.20%) $0.20
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$1,032.47 (-2.98%) $-31.76
Uber Technologies, Inc. Stock Quote
Uber Technologies, Inc.
UBER
$32.24 (-1.71%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.