With the S&P 500 up about 20% from its October 2022 recent low (as of July 6), many investors are ringing the bell that an official bull market is here. If this is your perspective, it might be a good idea to look at some beaten-down stocks to potentially add to your portfolio. The hope is that a stronger market overall could lift shares of all companies. 

One such ticker is PayPal (PYPL 3.98%). The fintech and digital payments powerhouse is currently down 79% from its peak price. And it trades at a cheap forward price-to-earnings ratio of 13.4, which means that you haven't missed out on this stock yet. 

Here's why PayPal could be a smart buy right now. 

Network effects 

PayPal allows merchants to accept electronic payments and consumers to pay for things without using physical paper cash. The business pioneered digital payments and has now become a behemoth, processing almost $1.4 trillion in total payment volume in 2022. The company also currently has 433 million active accounts, of which 35 million are merchants. 

At a high level, PayPal operates a two-sided platform, and this creates powerful network effects that are the main source of the company's economic moat. The fact that PayPal has so many consumers on its network makes it an easy choice for businesses to want to accept this form of payment.

The opposite is also true, where ubiquitous acceptance makes using PayPal almost a no-brainer for individuals. PayPal is the most popular digital wallet, accepted at roughly 4 out of every 5 of the top 1,500 retailers in North America and Europe. 

If a start-up business wanted to create a digital payments network from scratch to compete with PayPal, it would be almost impossible. It would need to convince merchants to accept the service without having any consumers signed up, and vice versa. That's a daunting task. 

Venmo, PayPal's peer-to-peer payments service, also has its own network effect. Friends might convince each other to sign up for Venmo in order to get paid back for something. As the number of customers increases -- now at over 80 million users -- the service becomes more valuable to everyone. 

Strong financials 

Many popular fintech companies have precarious financial positions, exemplified mainly by a lack of profits. PayPal bucks this trend. The business posted an adjusted operating margin of 23% and generated $1 billion of free cash flow (on revenue of $7 billion) in the first quarter. That's impressive. 

Unsurprisingly, PayPal's balance sheet is strong. As of March 31, it had $15.3 billion of cash, cash equivalents, and marketable securities, compared to debt of $10.9 billion. Given the uncertain state of the economy, as well as the possibility of a recession, investors can take comfort in knowing that PayPal should be able to weather whatever storm comes its way. 

Near-term catalysts 

There's no denying that PayPal has been dealing with some macro headwinds. Business was booming during the pandemic when online shopping was popular. But following the health crisis, consumer behavior normalized, and brick-and-mortar retail bounced back.

Additionally, spending shifted from goods, which PayPal specializes in, to services. This helps explain why revenue was up just 8% in 2022 and 9% in the latest quarter on a year-over-year basis -- a sharp slowdown from previous years. 

But the management team is still optimistic. During the first-quarter earnings call, CEO Dan Schulman announced upgraded full-year revenue guidance. He noted that discretionary spending is picking up -- more specifically, e-commerce spending. This can provide a boost to PayPal in the near term. 

Speaking of the leadership team, Schulman's planned departure at the end of this year could prove to be another catalyst for the company. PayPal has registered impressive revenue and earnings growth in recent years, but the stock is only up 80% since its July 2015 spinoff from eBay, trailing the Nasdaq Composite index's 173% gain. 

A new CEO could find ways to better monetize PayPal's massive user base, which could lead to even better financial performance. And the market could have a positive reaction.