Who doesn't want to earn huge returns from their investments? In fact, I'm sure many people hope that the stocks they own could one day make them millionaires.
With its shares currently trading 79% below its all-time high, a mark that was achieved in July 2021, I'm sure you don't think PayPal (PYPL +1.24%) can fall into this category right now. However, I believe there are some important reasons to be optimistic over the long term.
Can this top fintech stock turn things around, post strong returns, and turn its investors into millionaires? Here are the key variables you should be thinking about.
Growth potential
PayPal's business was growing like wildfire before, and especially during the worst days of, the COVID-19 pandemic. Digital payments were extremely popular at that time. While the gains have slowed somewhat due to a normalization of consumer behavior, as well as ongoing macro headwinds, the company still possesses meaningful growth potential.
For what it's worth, PayPal reported revenue and total payment volume (TPV) increases of 13% and 8%, respectively, in 2023. These are definitely solid gains given the current situation of higher interest rates and recessionary fears. Those key figures are significantly higher than they were a few years ago.
PayPal benefits from the secular tailwind of electronic payments and the rise of online shopping. There's no reason to believe these trends don't have a long runway ahead. According to a report by Boston Consulting Group, the worldwide fintech sector is expected to be worth $1.5 trillion by 2030, up from $245 billion in 2022. As the leader in the industry, PayPal is in an advantageous position.
It also helps the business that the new CEO, Alex Chriss, is demonstrating a focus on continued product innovation. PayPal is aiming to find ways to integrate artificial intelligence across its broad suite of features, which should attract more individuals and merchants to the platform.
NASDAQ: PYPL
Key Data Points
Competitive position
Investors should have confidence in PayPal's ability to not only stay relevant, but to remain a leader, in the fintech and digital payments space well into the future. That's because the business possesses valuable competitive strengths that can protect it from the threat rivals pose.
PayPal has 426 million active accounts, consisting of both merchants and consumers. This creates a two-sided ecosystem that benefits from powerful network effects. As there are more merchants that accept PayPal as a method of payment, a larger number of individuals find it valuable to sign up for an account. And as there are more consumer accounts, merchants who want access to a big global customer base will sign up for PayPal.
This favorable setup proves how incredibly difficult it would be to start a new payment platform from scratch. Consequently, PayPal has a strong competitive standing.
Added upside
Because PayPal shares have been such a terrible performer in recent years, it's accurate to assume that there's a ton of pessimism surrounding the business. Investors have very low expectations that the stock price can turn around.
But this is where the opportunity lies. Shares trade at a dirt cheap forward price-to-earnings (P/E) ratio of 12.6, adding tremendous upside. That looks extremely low for a company that has the positive attributes mentioned above, and that generates billions in free cash flow every year.
Based on the facts as I see them, PayPal certainly possesses the ingredients to be a winning stock over the long term. If you're bullish on the business and willing to invest a larger initial sum of capital with a time horizon that spans decades, this company could eventually make you a millionaire. Having patience will be key.
