What happened
Shares of PayPal (PYPL 1.41%) were trading about 3.5% higher as of 12:17 p.m. ET Thursday after analysts publicly speculated about the possibility that activist investors could set their sights on the fintech company.
So what
Recently, Bernstein analyst Harshita Rawat published a research note titled "Can an activist get involved and what can they do?" In it, Rawat points out that PayPal has not traded at prices this low since 2018, and highlights that it is being outperformed by many of its payments industry rivals.
"We are not advocating for an activist in the stock, rather highlighting what corporate actions, in our view, can drive value-creation for shareholders," Rawat wrote, recommending that PayPal make efforts on "better execution & speedier innovation through organizational changes, and [a] narrower but more focused set of priorities."
Don Bilson, the head of event-driven research at Gordon Haskett, noted that with PayPal CEO Dan Schulman soon to turn 65, this could be just the right moment for an activist investor to get involved, because PayPal's board of directors will need to start figuring out who they want to lead the company next. Bilson named Elliott Management, DE Shaw, Politan Capital, and Bill Ackman's Pershing Square as potential activist funds that could get involved. However, Elliott Management just took a big position in Pinterest. That makes it less likely that it would be interested in joining the fray at PayPal in the near future, but not impossible.
Now what
The interventions of activist investors can increase companies' value for shareholders, but when they do get involved, matters don't always play out as retail investors might prefer.
Still, PayPal is profitable, and it should benefit as more payment and transaction activity moves into the digital realm. The stock currently trades at just above 27 times earnings -- around the lowest valuation it has had since it went public. I think it's a good long-term buy.
