With major indexes in the midst of a raging bull market, it's clear that investors are full of optimism and enthusiasm. But there are still some companies that aren't joining the rally.
Take PayPal (PYPL +1.59%). It has completely fallen out of favor with the investment community. Its shares sit 78% below their peak price. Since the start of 2023, at a time when the S&P 500 and Nasdaq Composite have soared, PayPal has dropped 8% (as of March 22).
But if we look out over the long term, can this fintech stock turn things around and be a millionaire maker?
Boosting engagement from the user base
Perhaps one of the key reasons that PayPal's stock has taken such a beating is because of the company's stagnating user base. As of Dec. 31, there were 426 million active accounts on the platform. That figure is the same as it was 24 months ago. Anytime the customer base stops growing, it's understandable why investors start to worry.
This also points to the intense competition in the digital payments market. A rapidly expanding industry that has lots of long-term potential will definitely invite rivals. To PayPal's credit, it was one of the first major players in this sector, so it has developed a strong brand and scale that helps it defend against competitors.
The company's favorable position is illustrated by total payment volume (TPV) increasing 13% year over year to $1.5 trillion in 2023. That figure was 63% higher than the boom during 2020. Because PayPal operates a fee- and usage-based business model, more TPV is better, since it can lead to higher revenue.
And while the user base flatlines, it's extremely encouraging to see transactions per active account rise at a healthy clip. In the past 12 months, the average user transacted 58.7 times on the platform. That's up from 40.9 in 2020.
Alex Chriss, who was brought on as chief executive officer late last year, has already shown that he's focused on finding innovative ways to drive engagement. Trying to incorporate artificial intelligence is already a priority.
NASDAQ: PYPL
Key Data Points
The business is still extremely profitable
If you looked at PayPal's stock chart during the past three years, you would think that this business is on the verge of bankruptcy. But that's just not true.
Yes, PayPal carried $11.3 billion of long-term debt on its balance sheet at the end of last year. It also had $17.3 billion of cash, cash equivalents, and investments. That's an obvious sign of a fiscally responsible organization.
The income statement is even more promising. PayPal generates double-digit percentage operating margins with impressive consistency. And it produces billions of dollars of free cash flow each year. This is a financially sound company that has long-term staying power, which minimizes risk.
On the road to a million
There might be no better time to scoop up PayPal stock than right now. It trades at a dirt cheap forward price-to-earnings ratio of 13. That's a huge discount to the S&P 500 and the Nasdaq 100. And it's a clear indication of the pessimism surrounding PayPal and its prospects.
There are, of course, two critical factors that can determine if a single stock can help you get to a $1 million position. If you're comfortable investing a bigger dollar amount initially, and you have a longer time horizon, then the odds are more stacked in your favor.
Nonetheless, it all depends on your bullish conviction. If you believe that PayPal will be a solid investment over the long term, then it certainly makes sense to buy the stock today.
