With the market near all-time highs, you might be thinking that all businesses are benefiting from the bullish sentiment. But this just isn't true.

Look at PayPal (PYPL 2.90%). As of this writing, its shares are 81% below their all-time high from July 2021. The company has a new chief executive officer who's trying to right the ship and hopefully reward investors in the process.

But before you buy this fintech stock on the dip, here are three things you must know about PayPal.

Peeking at the financials

You wouldn't be able to tell by the poor performance of its share price, but PayPal's fundamentals are still in good shape. The business generated $4.2 billion of free cash flow in 2023. And it had $6 billion of net cash on the balance sheet as of Dec. 31. These aren't signs of a fiscally troubled enterprise.

Management has done a good job of returning capital to shareholders via stock buybacks. In the past 12 months, PayPal's share count outstanding has declined by nearly 5%. And this year, the executive team plans to spend $5 billion or more on buybacks after spending $5 billion in 2023. This type of strategy helps to boost earnings per share.

When it comes to growth, PayPal has hit a bit of a rough patch. Revenue was up 8% in both 2022 and 2023, down from double-digit percentage gains in past years. Macroeconomic headwinds reduced consumers' propensity to spend on discretionary items. Analysts expect revenue to rise 6.9% in 2024.

Competitive landscape

The payments industry is notoriously competitive. That's not surprising, given how lucrative finding success at scale is in this market. Just look at Visa and Mastercard. They are two outstanding businesses, with incredible operating margins and powerful network effects.

Given that it has been at the forefront of digital payments for more than two decades, PayPal deserves credit for what it has achieved thus far. With its successful two-sided platform of 426 million active users, the business also benefits from network effects that help protect it from the threat of competition.

However, there are many players all vying for a bigger piece of the growing electronic payments pie. On the merchant side, PayPal's Braintree goes up against scaled rivals like Stripe, Adyen, Worldpay, and even Block's Square.

And on the consumer side, there are many digital-wallet providers going up against PayPal's flagship app, as well as it Venmo peer-to-peer payment app. The big tech companies like Apple and Alphabet have popular payment services. Block's Cash App is catching on with tens of millions of active users. And this doesn't include all the banks and brokerage services out there.

Cheap valuation

PayPal shareholders haven't been rewarded historically as they had hoped. The stock is up 59% since being spun-off from eBay in July 2015. That meaningfully lags the 249% total return of the Nasdaq Composite Index. That's certainly a discouraging result.

But for investors who have conviction that PayPal can get back to sustainably strong revenue and earnings growth, there's a rare opportunity to buy the stock on the cheap right now. The shares trade at a forward price-to-earnings ratio of just 11.4, which is a ridiculously low valuation for a competitively advantaged business that is benefiting from the e-commerce and digital-payments trends, and that generates lots of cash.

Investors who now understand more about this business can make a more informed decision about the stock.