PayPal (PYPL 1.39%) has been one of the worst stocks to own in 2023. While the broader market has enjoyed significant gains, PayPal shareholders have been left in the dust, and the stock is down around 13% this year.
However, recent news of PayPal's new CEO could get investors excited as his background fits nicely into PayPal's best business segment. Can this news revitalize the stock? Or is it time to move on from PayPal? Let's find out.
Chriss and Braintree make a great combination
Earlier in August, PayPal named Alex Chriss its new CEO. Chriss was formerly the executive vice president of Intuit's small business and self-employed group, which is its largest division by revenue. His accomplishments in that role were quite impressive, but what has me most excited about his leadership is his focus on small businesses and individuals.
Although PayPal hasn't updated this graph since Q4 2022 results, it has continuously noted that significant business growth has come from its Braintree product. Braintree is denoted as "Unbranded Processing" in this chart, and has grown substantially -- and is at the point where it has become the largest part of PayPal's business.
Image source: PayPal.
Braintree Payments allows users to process transactions using regular credit and debit cards, PayPal, and PayPal credit on a single platform, and is used by several noteworthy companies like Airbnb, StubHub, and Sierra Trading Post. With Chriss's background in small businesses, he should be able to lead PayPal's rollout in capturing business in this segment from competitors like Adyen and Stripe.
In fact, Braintree is already notching significant gains against Adyen. In its first half of 2023 results (Dutch companies only report twice a year), Adyen saw substantially slower growth in North America because its take rates are much higher than Braintree's. As a result, Braintree had more customer wins at the cost of slightly lower margins.
Chriss knows small businesses well, and I'd expect significant growth of Paypal's Braintree product to continue under his leadership.
PayPal's stock has never been this cheap
While PayPal is no longer the growth machine it once was -- Q2 revenue only rose 7% year over year, and Q3 growth is expected to be about 8% -- it is substantially increasing its profits. Earnings per share (EPS) were up 414% in Q2 and are projected to come in at $3.49 for the full year, compared to just $2.09 last year.
Peeking into 2024, Wall Street analysts expect $4.46 per share, indicating another phenomenal year of around 28% growth. Despite these rosy projections, PayPal's stock trades at a dirt-cheap valuation level.
PYPL PE Ratio data by YCharts
With the stock at 17 times earnings, it has never been this cheap. However, it could get even cheaper. If you value the company using 2024 estimates, you can purchase the stock for 13.9 times forward earnings. Compared to the broader market, that's an absurdly low price for a stock. Combine that earnings growth with the potential economic recovery in the back half of 2024, and PayPal looks like a stock primed for a massive run.
PayPal is looking like an excellent turnaround investment story right now. While I don't know the timetable for its potential rebound, I'd say it's coming fairly soon. You may want to find another investment if you're unwilling to be patient with the business over the next three to five years. But if you can stay the course as the business recovers, I think PayPal makes for a great buy right now.
