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History Says That Right Now is a Perfect Time to Buy PayPal Stock

By Jon Quast, Jason Hall, and Danny Vena – Updated Nov 11, 2021 at 6:17PM

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PayPal stock is down over 30% from its all-time high -- the largest pullback in its almost seven years on the public market.

In the third quarter of 2021, PayPal Holdings (PYPL -2.68%) added roughly 13 million new net accounts compared to the previous quarter. Moreover, user engagement also increased. Right now, users are interacting with a PayPal product 44.2 times per year on average, up from 43.5 times last quarter.

User growth and user engagement are two trends Fool contributors Jon Quast, Jason Hall, and Danny Vena talked about in this video from Motley Fool Backstage Pass. It was recorded on Nov. 1, prior to these Q3 results from PayPal, but the trends they liked with this business have continued. And considering the stock has fallen further from the time of the video, it's likely these Fools think PayPal stock is an even better buy today than it was a couple weeks ago.

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Jon Quast: I'm going to share some stuff about PayPal. Now real quick, I have been a PayPal shareholder since day one. I actually was a fairly newer investor at the time and I was so afraid that PayPal was going to spike on the first day of trading, that I actually bought eBay before the spin off, so that I would be guaranteed to have shares of PayPal on day one. I've been holding since then up 532% for me since 2015 was when the spin off happened.

You could talk about so many things with PayPal. We could take this discussion in so many different directions. But one that I want to focus on, is something that's a really top priority for this management team. They really want people transacting more on the platform and they want more everyday people like you and me on there as active users so that they can grow their merchant side of the business.

This is the end of 2020 here, I just want to point out 377 million accounts at the end of 2020. At that the time engagement was 40.9 transactions per active account, a little bit more than once a month they're transacting with a PayPal product. The stated goal is to get that up. Then first quarter, this is three months after the end of 2020, bumping that up to 42.2 payment transactions per active account. Then the most recent quarter, up to 43.5.

You can see here that the company's strategy, the company's stated goal is being accomplished. They are getting people to transact more often on the PayPal platform and they're doing this in a variety of ways, by rolling out new products and services. When you see them rolling out things like cryptocurrency or buy now, pay later, what they're trying to do is they're trying to scratch a consumer itch to get them on the platform and transacting more often. If they can do that, they really believe that they can grow the merchant side of their business, really provide analytics and tools to those people who are using PayPal as their selling infrastructure. This is one of the reasons the company acquired Honey, was to continue to grow that merchant side of the business.

Another thing that makes PayPal really interesting to me right now, and I just want to show this chart. This is PayPal stock since it was spun out from eBay, and this is percent off the high. You can see here, there have been many times the stock has fallen 10% or more. But it's fallen 20% or more several times as well.

Jason Hall: I love this, Jon. I want to just say real quick. Guys, this is a feature of great stocks, not a bug. If you go look at the 100 best performing stocks of the past 20-30 years, they do this, this is normal. Right, Jon?

Quast: Yeah, this is normal. I think this is one thing that we're going to bring out. We'll go ahead and bring it out here right after I finish this point.

Basically this is how many times it's pulled down 20% or more. I'm sure each and every time there was plenty of headlines talking about the demise of PayPal. But you go back to normalized and this is what it looks like, completely different. Each of those 20% pullbacks was always a good buying opportunity. Personally, I think this 25% pullback right now is also a good time to add to or create a PayPal position.

Like you said Jason, this is a feature of the stock market. One of the things that we're talking about today, there's two things that we're talking about. We're talking about buying and holding for the long term. When Danny talks about Netflix and how much he is up in Netflix, that didn't happen overnight. That happened from buying very early and holding very long, and he was able to see his gains compound over time to create something very powerful in his personal financial situation.

Other times though, we can benefit from understanding that volatility is normal, that pullbacks happen, that stock market crashes are regular occurring events, and being prepared for them. Not waiting until you get the perfect crash, because if you're always waiting and waiting, chances are you're not actually going to take action when the crash happens. But being prepared for crashes, recognizing that they're regular occurring events. Then you can take advantage and my view Jason, buy a company like, which one is the one that you just presented, Ryman? Did you buy that one while it was down?

Hall: Yeah, that was just been hugely successful.

Quast: There you go. For me, the two others that I'm going to talk about today, I pretty much nailed the bottom [laughs] in last year's crash with both of them. I wasn't trying to nail the bottom, I was taking advantage of a situation that I recognize was presenting good opportunities and invested in some of the better companies that I saw.

Thoughts Danny?

Danny Vena: It's interesting because when you were talking about owning PayPal day one, I did exactly the same thing. I actually own some eBay stock, I have added to my PayPal stock numerous times over the years, and I think PayPal has a really good opportunity going forward. In fact, I ranked it slightly above Netflix, simply because of the explosion of digital payments.

Digital payments was already accelerating, it exploded last year. I think we're going to see more of that going forward, I think we're going to see a lot of touchless payments. I like the fact that PayPal is in Venmo, which is a favorite among Millennials and Gen X users, and the fact that they're expanding that ecosystem. Not only do they have buyers and sellers, but they also have all these different areas. They have the buy now, pay later, they have the digital payments, they have the Venmo, and they have the crypto. They are expanding that ecosystem, I think that bodes well for the future.

Jon Quast owns shares of PayPal Holdings. The Motley Fool owns shares of and recommends Netflix and PayPal Holdings. The Motley Fool recommends Ryman Hospitality Properties and eBay and recommends the following options: long January 2022 $75 calls on PayPal Holdings and short January 2022 $82.50 calls on eBay. The Motley Fool has a disclosure policy.

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