Last year was not a good one for PayPal Holdings (PYPL 1.94%). Thanks to consecutive revenue misses in the second and third quarters, the payments company has seen its share price fall more than 19% in the past year. With people largely stuck at home and shopping online, the pandemic was a boon for PayPal's products and services. However, investors might have soured on the company's prospects as things begin getting back to normal. 

But the business still has solid fundamentals and a bright future, and the stock might be a good value right now. So is PayPal ready to bounce back in 2022? 

A person holding a smartphone that says "money received" on the screen.

Image source: Getty Images.

Strong financial position 

I don't think PayPal's stock performance in 2021 is justified given how well the company has been performing. In the most recent quarter, revenue jumped 13.2% compared to the same period in 2020. And PayPal added 13.3 million net new active accounts during the three-month period, bringing the total to an incredible 416 million. If PayPal keeps adding users at a fast clip, investors will be happy. 

PayPal has always sported some superb financial metrics. Its profit margin of 20.1% is excellent, and over the trailing 12 months, the business produced $5 billion in free cash flow on revenue of $24.6 billion. Even more impressive is that PayPal had cash, cash equivalents, and investments totaling $20 billion (as of Sept. 30, 2021), showcasing a fortress-like balance sheet that affords the leadership team the flexibility to invest for growth. 

To prove that PayPal's business is still thriving, it's worth mentioning that an astounding $310 billion of payment volume flowed through the company's platform in the most recent quarter, up 26% year over year. And engagement keeps improving, with the average account completing 44.2 transactions in the past 12 months. 

Expanding its addressable market 

In September, PayPal unveiled an upgraded mobile app. It was equipped with a whole range of capabilities, including bill payment, high-yield savings, shopping deals and rewards, and early direct deposit. I think this year will show consumers' propensity for a one-stop financial tool in their pockets, supporting PayPal's growth. 

PayPal's $2.7 billion acquisition of buy now, pay later lender Paidy expands the company's geographic footprint in Japan, the world's third-largest e-commerce market. I think it will prove to be a sound strategic move. Additionally, in an effort to find ways to monetize Venmo, PayPal has partnered with Amazon to allow U.S. customers to check out with the peer-to-peer payments app. This boosts Venmo's appeal to users. 

These initiatives show that PayPal has a ton of optionality in its business model, with numerous opportunities to expand its reach in new product categories and markets around the world. I expect much of the same in 2022. 

Valuation looks attractive 

PayPal today trades at a price-to-earnings (P/E) ratio of 45, a level the stock has been above for most of the past five years. Like other fast-growing fintech stocks Block and Upstart Holdings, PayPal hit a rough patch over the past few months. I think the general investor sentiment is that this pandemic winner won't do so well when things slowly normalize and in-person shopping rebounds. The stock skyrocketed 117% in 2020, so the performance in 2021 could simply be the result of a stock that rose too much too fast. 

Wall Street analysts forecast PayPal's earnings will rise just 14% year over year in 2022. But the business has beat estimates in each of the past four quarters, making it possible that analysts are a bit too pessimistic about the current year's prospects. Furthermore, it's not out of the question for PayPal to fetch a higher P/E as the year progresses, particularly as management continues its track record of remarkable business execution. 

Since it was spun off from eBay in July 2015, PayPal's stock has only had one losing year, and that was in 2021. The market tends to overreact on both the upside and the downside. The high probability of strong financial results, new products and geographic expansion, and an attractive valuation make me believe that PayPal will be a big winner in 2022.