It's been excruciatingly painful to be a PayPal (PYPL 1.24%) shareholder. Not only is the stock trading down 20% so far in 2023, but it currently sits 81% below its all-time high price, which was established in July 2021.

However, it might not all be bad news. This business is still putting up solid growth. And it has an attractive position in the payments industry.

Bullish investors are probably wondering if the fintech stock can double over the next five years. It's certainly a likely scenario, in my opinion. Let's look at what needs to happen for PayPal to put up that kind of impressive return.

PayPal will need to demonstrate continued growth

PayPal's revenue jumped 8% year over year in the latest quarter to $7.4 billion. What's more, total payment volume, which measures the dollar amount of transaction activity occurring on the platform, rose 15% year over year to $388 billion. This is a far cry from the monster growth the company registered in previous years (especially during the pandemic), but these gains are still healthy, no doubt.

It's not a shocker to say that for the stock to double by 2028, these two key metrics need to continue their upward trajectory. And it's not hard to believe that they will. PayPal benefits from the secular tailwind of digital payments and online shopping, both trends that still have lots of growth potential well into the future.

But there could be a headwind that investors need to pay attention to. PayPal has 428 million active accounts. That figure declined by 1% compared to Q3 2022. Hopefully, the business can find ways to expand its user base, even at a slower rate. What is encouraging, though, is that transactions per active account, a measure of engagement, were up 13% last quarter.

Something else that might get in PayPal's way is the intense competition in the payments space. The company's advantage is that it serves both merchants and consumers, so it has a treasure trove of data that helps with lowering fraud and increasing authorization rates. But that means PayPal competes in one way or another with the likes of Shopify, Adyen, and Stripe on the merchant side. And it goes up against Block's Cash App, Apple Pay, and Alphabet's Google Pay on the consumer side. These are all very formidable opponents.

PayPal will continue to have its work cut out for it. However, its leadership position in the industry is enough of a reason to be optimistic.

Operating leverage

Alex Chriss, PayPal's new CEO, who took over from Dan Schulman, is focused on making the business a more efficient enterprise. He mentioned how PayPal will become a "leaner" and "more efficient" organization.

"On the expense side, we have an opportunity to continue to manage opex [operating expenses] efficiently," he said on the Q3 2023 earnings call. "We have a lot of acquisitions that we've done over the past few years. We have a lot of duplication and a lot of manual work that we have an opportunity to invest in automation."

The result is that PayPal can benefit from operating leverage, which means that earnings grow faster than sales through better management of the company's expense structure. An expanded bottom line can help boost the stock price.

Valuation upside

Because PayPal shares are so beaten down, they are ridiculously cheap right now. The stock trades at a forward price-to-earnings multiple of 11.5. That means investors have become overly pessimistic about the business. Should the company keep improving its fundamentals, that valuation should get bumped up. This added upside makes it easy for investors to get excited about this stock doubling in the next five years.