PayPal Holdings (PYPL 2.90%) is one of the most popular stocks trading on the online brokerage site Robinhood Markets, and for good reason. But the reason might not be what you expect from a company that has been known as a high-flying growth stock since it went public.

The reason is that PayPal is now in value stock territory, trading at its lowest valuation ever. While it has faced its share of challenges in recent years, it looks too good to ignore at its current level. Let's look at why the company is a good long-term buy right now. 

A historically cheap valuation

There have been several reasons PayPal, once a fintech darling, has struggled in recent years. It became way overvalued during the post-pandemic tech bubble, with its price-to-earnings (P/E) ratio surging to more than 71 in mid-2021. It crashed hard when the bubble burst, as its stock price plummeted 62% in 2022. But there have been other factors that have contributed to its decline, both internal and external.

Inflation and high interest rates have damped consumer spending, while the end of the pandemic resulted in a decline in online spending compared to the height of the pandemic.

Also, the payments industry has exploded, and PayPal has many new competitors taking a bite out of its market share. In addition, PayPal has some self-inflected wounds as an acquisition spree the past few years resulted in some misses, along with higher debt and expenses and a loss of focus.

This year, there has been the distraction of longtime Chief Executive Officer Dan Schulman announcing his retirement and the speculation of who will replace him. PayPal answered the latter question in August when it hired Intuit executive Alex Chriss to take over starting Sept. 27.

These factors have all contributed to the declining stock price. PayPal is now trading at about $64, down more than 11% year to date. It has a P/E ratio of 17, which is the lowest it has been since it spun off an an independent company from eBay in 2015. The forward P/E ratio is just 11, and the five-year PEG ratio (price/earnings-to-growth) is just 0.5. A PEG of less than 1 tends to suggest a stock is undervalued.

So, let's look at why PayPal is a good buy at this valuation and not a value trap.

Revenue continues to grow

Through this down period for PayPal, it has consistently managed to increase revenue. In the most recent quarter, ended June 30, revenue rose 7% year over year, while payment volume jumped 11%. For 2023, the outlook is for revenue to increase 8% from the previous year.

The company is also in the midst of a sweeping $900 million expense reduction plan, which should help it boost its earnings. Earnings per share (EPS) under generally accepted accounting principles (GAAP) are projected to jump 67% to $3.49 in 2023, while adjusted EPS is expected to grow 20% to $4.95. And the company plans to buy back some $15 billion in stock over a span of several years. This year, it will repurchase $5 billion.

And while competition has gotten stiffer, PayPal has some distinct advantages as the market leader in digital payments. Along with its size and well-established brand, it also serves both the consumer, through PayPal and Venmo, as well as the merchants and businesses on the other side of the transaction. None of its competitors have that advantage at that scale. And it creates a network effect: As more PayPal consumers sign up, it leads to more merchants, and vice versa.

So, right now, if you view PayPal as a value stock, and not some Robinhood highflier, it is too good to ignore. It appears to be on the right track, with enough growth potential to beat the market. But stay tuned for more on its strategic direction during this period of executive transition.