To say that PayPal Holdings (PYPL 1.82%) stock has disappointed investors the past two years would be a major understatement. At recent prices, shares of the leader in electronic payments are more than 80% below their all-time high. And they trade at a dirt cheap trailing price-to-earnings ratio around 16.
After that huge slide, I see three potential catalysts coming up this year that could push the stock back up to $70, which would be a roughly 20% gain. To be clear, nobody can predict where stocks will move in the short term -- that's why we preach at least a three-year holding period. But long-term investing means focusing on the business, and that's what this exercise is all about. Let's take a closer look at what investors should know before deciding to add the fintech stock to their portfolios.
Strong third-quarter financial results
The most obvious event that could push PayPal's stock price up in no time is if the company reports stellar financial results for the three-month period that ends Sept. 30. These quarterly reports, which reveal key metrics that indicate the direction a business is heading in, can have a huge influence on shareholder sentiment.
Management expects revenue to total $7.4 billion, good for an 8% year-over-year increase on a currency-neutral basis. They also believe adjusted earnings per share will rise between 13% and 14%. In order to adopt an optimistic perspective, investors will probably need to see better growth rates than these.
It would be really encouraging for PayPal to also post strong growth when it comes to total payment volume (TPV) and transactions per active account. These are two of the most important data points investors can look at with this company, because they provide a clear indication not only of the expansion of the payments platform, but how engaged users are.
Favorable macro backdrop
Even if PayPal manages to crush Wall Street expectations with its Q3 results, the stock could still fail to reach $70 by the end of 2023. That's because it's always possible that the macroeconomic environment might change for the worse in the near term. Just look at what happened in 2022, as interest rates rose quickly and both the S&P 500 and the Nasdaq Composite Index crashed by double-digit percentages.
Financial experts and economists have been surprised at how resilient the U.S. economy has remained this year, even though interest rates have continued to rise. A recession -- whether mild or severe -- could pressure the overall stock market. If the Federal Reserve believes that inflation still needs to come down, it can decide to raise interest rates one more time before the year's over. Markets could view this in a negative light, sending share prices lower.
On the other hand, if rates stay flat, and the Fed instead provides commentary about potentially cutting rates, then growth stocks -- including PayPal -- could be poised for a bull run.
While the macro backdrop is certainly important, it's impossible for investors to predict what's going to happen. But this is a potential catalyst.
NASDAQ: PYPL
Key Data Points
Surging holiday usage
It's not a surprise that a business like PayPal, which facilitates e-commerce transactions, might see more activity around the holidays, when people are spending more. If data is revealed that shows PayPal's TPV or accounts have gone up significantly, it can provide shareholders with the confidence they need, and that could lift the stock.
In November last year, spending data showed that Apple Pay's usage jumped 59% during the month in the U.S., a fast rate of growth compared to the 4% decline PayPal was experiencing. That certainly isn't a positive sign, because it demonstrates how competitive the industry is becoming. Plus, having Apple as a rival to worry about isn't welcome news for any business.
For what it's worth, PayPal is accepted as a checkout option at 79% of the top 1,500 retailers in North America and Europe, making it the most widely used digital wallet. That definitely holds some weight. Nonetheless, investors will need to follow any data releases that provide insights into adoption rates.
Major boost needed?
PayPal shares have gotten so crushed that it might just need all three of the above factors to happen over the next three months for the stock to hit $70 by year-end. Again, I really have no idea if these catalysts will lift PayPal's stock in the next three months -- if they play out this year at all. But PayPal investors should still keep an eye on all three, because strong results and an improving macro environment would be a major boost.
