When it comes to investing, one great thing you can do is learn from the professionals. One way you can do this is by seeing what the smart money is doing through their Form 13F filings.
The Securities and Exchange Commission requires 13F filings for an institutional investment manager with more than $100 million in qualifying securities. These filings are required quarterly and within 45 days of the end of the quarter.
These disclosures can give investors good insight into how the best minds on Wall Street are positioning their investment portfolios. One stock that major funds have been adding hand over fist is PayPal (PYPL 2.03%).
These two firms added millions of shares of PayPal in the quarter
During the fourth quarter, Two Sigma Advisers added 1.5 million shares of PayPal, while Clearbridge Investments added 2.6 million shares.
PayPal got beaten up since peaking at about $310 per share in February 2021, when its price-to-earnings ratio (P/E) was 86. By the end of 2021, it was down to $190 per share -- a price point that became attractive enough for Clearbridge to build a position, with the firm saying:
Long-term growth drivers remain intact, and it has increased innovation at both Venmo and core PayPal, adding new experiences around shopping and investing that we expect to positively contribute to growth in users and average revenue per user over the next five years.
Image source: Getty Images.
This is what caused the sell-off
Since the fourth-quarter report, PayPal has continued to sell off and now trades at about $110 per share. Investors had a couple of concerns in the past year. Among the biggest was that PayPal and eBay had begun the planned decoupling of their businesses, impacting PayPal's top-line growth.
According to PayPal, this decoupling took $1.4 billion off the top line, reducing growth by 7% in 2021. The separation will continue to be a headwind for the business this year, putting another $600 million of pressure on the top line. However, these headwinds will taper off, with eBay representing only 3% of its revenue and total payment volume (TPV) at the end of last year.
Investors, meanwhile, have a wary eye on inflationary pressures, which could pressure consumer spending. In 2021, consumer spending ended on a weak note, down 0.6%, while retail sales closed out down 2.5%. As a result, PayPal management was more conservative with its growth expectations, projecting revenue growth of 15% to 17% this year, down from its previous estimate of 18%.
PayPal continues to be a force in digital payments, and it's cheap
PayPal's price-to-earnings (P/E) ratio has come way down to about 31, and its forward P/E is even lower at 24, making it the cheapest it's been since being spun off from eBay. At prices like this, PayPal stock looks very appealing. Last year was still one of PayPal's best years in its history, as it surpassed $1 trillion in TPV which helped revenue increase 18% to $25.4 billion.
The company continues to grow its business. In recent years, it has expanded into allowing customers to buy cryptocurrencies, cash checks, and use "buy now, pay later" options. It also holds the spot as the most accepted digital wallet, with 76% of major retailers accepting PayPal, compared with Apple Pay's 27%, Affirm's 9%, and Afterpay's 6%.
PayPal will also shift its attention from adding customers to increasing customer engagement this year. Unlike subscription revenue models like Netflix, PayPal makes money when customers use the app. The company found that a third of its customers drove most of the spending volume. This shift in focus should help revenue continue to grow at management's 15% to 17% target.
Given PayPal's cheap valuation, strong projected growth, and continued dominance in digital payments, it's no wonder the smartest on Wall Street are buying the stock.
