The expression "it's a game of runs" will be familiar to basketball fans. Here's the logic behind it: One team rarely dominates a game from beginning to end -- it has highs and lows throughout. In many ways, equities behave much the same way. Companies, even the best of them, never have smooth, uninterrupted, northbound runs -- they have highs and lows.
It's a game of runs. That's why when a stock is going through a rough patch, it might still be worth investing in for long-term investors, provided it has the tools to turn things around. Let's look at one stock that has seen challenging days since January 2022: PayPal Holdings (PYPL 1.27%). Here's why this fintech giant is still a top buy-and-hold option.
What happened to PayPal?
One of the most critical determinants of success for any company is its CEO or, by extension, its leadership team. PayPal's CEO, Dan Schulman, has been with the company since 2014. But his tenure is about to come to an end. The company has performed well under his leadership, so it's not surprising to see some investors experience doubt as to PayPal's ability to continue down that path. This isn't the only issue PayPal has encountered over the past year.
After its business experienced an abnormal boom in the early days of the pandemic, PayPal has slowed down considerably -- revenue growth and net new active accounts additions are down substantially.
PYPL Revenue (Quarterly YoY Growth) data by YCharts
Economic problems have played a role here. PayPal makes money on transaction fees, and fewer transactions -- for instance, due to slowing economic activity -- can hinder revenue growth. Lastly, valuation has also been a factor. PayPal's shares had gotten a bit too expensive, and the sell-off it has experienced may have been overdue.
PYPL PE Ratio (Forward) data by YCharts
Despite all of these issues, here is why PayPal can rebound and still deliver excellent returns to patient investors.
The future is still bright
PayPal can fix the issues it has faced recently, or better yet, some will resolve themselves. The economy won't be down forever. It has started recovering, something that should boost PayPal's business. Meanwhile, the fintech giant announced its new CEO, Alex Chriss, who will step into his new role in late September.
Alex Chriss is currently an executive with Intuit, a company that offers a suite of financial services to individuals, the self-employed, and small and medium-sized businesses. Chriss has been with Intuit for 19 years, rising through the ranks and eventually leading the company's small business and self-employed unit since January 2019, a period in which the unit grew its customer base and revenue at compound annual growth rates of 20% and 23%, respectively.
In other words, PayPal's new CEO is deeply experienced with business and consumer-facing financial services. That is precisely the kind of background the company's leader needs.
PayPal's payment solutions allow consumers a fast and easy checkout experience with merchants while it helps businesses with risk management services, data analytics tools to drive greater conversions, and more. As of the end of the second quarter, PayPal had 35 million merchant accounts and 400 million consumer accounts. This highlights one of PayPal's economic moats: It benefits from the network effect. In other words, the value of its platform increases with use.
The more consumers join its ecosystem, the more it becomes attractive to businesses, and vice versa. So, we can expect PayPal's accounts to grow over the long run, especially if led by a CEO who knows what it takes to create new products that cater to its customers, as its new CEO seems able to do based on his experience with Intuit. PayPal also benefits from another competitive edge, namely its solid brand name.
The company has been a fintech leader for a while. Its brand is intimately linked with this industry, which will continue to grow rapidly thanks to the expansion of e-commerce and greater demands for digital forms of payment. The long-term growth of fintech combined with PayPal's moat and new CEO should allow the company to deliver better returns from here on out, in my view.
That's why PayPal is still a stock worth investing in, despite what the market seems to think of the company.
