A lot of the attention in the payments world deservedly goes to Visa and Mastercard, which are two wonderful businesses. But PayPal (PYPL 2.90%) has become a force when it comes to digital transactions.  

It hasn't been a fun ride for shareholders, though. If you invested in PayPal in July 2015 at the time it was spun off from eBay, you'd be sitting on a return of 99% (as of July 25). This means that a $1,000 investment in the fintech company would be worth just under $2,000 right now. This pales in comparison to the Nasdaq Composite Index's rise of 182% during the same time. 

Let's take a closer look at where PayPal's been in the past few years. 

Tremendous growth 

From that eBay spin-off to the stock's all-time high in July 2021, PayPal shares skyrocketed 740%. That certainly could've been a wonderful boost to anyone's portfolio. 

The stock's performance wasn't surprising given that PayPal was thriving. For starters, its early success was catapulted by the rise of online shopping and electronic payments. Between 2016 and 2019, PayPal's total payment volume (TPV) and revenue increased at compound annual rates of 26% and 18%, respectively. 

Then, the COVID-19 pandemic introduced a spectacular tailwind for the company. PayPal added 73 million active accounts in 2020, bringing the total to 377 million at the end of that year. This strong performance prompted CEO Dan Schulman, who is set to retire at the end of this year, to predict that PayPal would double its user base to 750 million by the end of 2025. The business then added 49 million more active accounts in 2021. 

Hitting a wall 

PayPal's fall is even more striking than its monumental rise. As of this writing, the stock is 76% off its peak price. And I think numerous factors have led to this precipitous decline. 

With the Federal Reserve increasing interest rates at the fastest pace on record in 2022, investors simply soured on growth stocks that carried high multiples. PayPal fit squarely into this category; its trailing-price-to-earnings (P/E) ratio was 75 at the stock's all-time high, making it a perfect candidate to experience substantial multiple contraction. 

Additionally, the business faced two major headwinds. After posting above-normal growth during the pandemic, PayPal had to deal with a normalization of consumer behavior as economies reopened and brick-and-mortar shopping became popular once again. And if this wasn't enough of a knockout blow, PayPal had to operate in much tighter economic conditions as the central bank pushed up rates, which I noted earlier. 

Higher interest rates, inflationary pressures, and fears of a recession will generally discourage consumers from spending as much as they would if conditions were more robust. And in PayPal's case, because the payments network skews toward discretionary purchases, it is negatively impacted even more so by a weaker consumer. 

TPV in 2022 of $1.36 trillion was up 9% year over year, below the previous two years' gains. And revenue increased 8% in 2022, a far cry from the double-digit growth investors have become used to seeing. The top-line's single-digit gains have continued into 2023.

PayPal also only added 8.6 million active accounts in 2022. Unsurprisingly, Schulman has since walked back his bold prediction of PayPal hitting 750 million users by 2025. Instead, the focus now is to drive higher engagement from existing accounts. 

There's no doubt that PayPal has been challenged in recent quarters, particularly as it relates to growth. But if you're an investor who still believes in the company's long-term prospects, buying the stock today at a trailing P/E ratio of 31, which is below its historical average, might be a smart move.