PayPal (PYPL +0.31%) was a huge winner after it was spun off from eBay in July 2015. From that point up until its peak price in July 2021, the shares skyrocketed 740% as the company rapidly expanded.
But slower revenue and user gains, coupled with a general wariness of growth-oriented and tech-focused businesses, have sent the fintech stock cratering. It currently sits about 80% below its peak price.
I'm sure that hasn't prevented the company's most bullish supporters from hoping there are better days ahead. With that said, is PayPal a millionaire maker?
Industry tailwinds
You wouldn't be able to tell by the stock's performance, but PayPal's business remains on solid footing. Revenue increased 8% in 2023 before rising 9% in the first three months of this year. To be clear, this isn't the same type of growth that the company registered in previous years, but that's still a positive outcome.
The top line continues to be propelled by PayPal handling more payment volume. Total payment volume was $404 billion in the first quarter, up 14% year over year. This figure is up substantially from the same period in pre-pandemic 2019. This tells me that not only did PayPal benefit from the health crisis, which boosted digital payments, it has held on to those gains.
It's easy to be optimistic about the company over the long term. That's because both e-commerce and cashless transactions, two powerful tailwinds working in PayPal's favor, aren't going away anytime soon.
Thanks to its more than two-decade history atop the digital payments industry, this business is in one of the best positions to benefit. As of March 31, PayPal had 427 million active accounts. These users transact more over time, due to higher engagement and ongoing product innovation, a key focal point for the executive team.
PayPal is a two-sided global platform that consists of merchants and customers, and this creates powerful network effects. This competitive strength gives me confidence that PayPal's industry position is well fortified.
NASDAQ: PYPL
Key Data Points
Robust profitability
Besides growth and an economic moat, another thing that proves PayPal is a high-quality business is its financial situation. The stock's free fall might indicate that this is a company on the verge of bankruptcy. That couldn't be further from the truth.
Last year, PayPal generated operating income of $5 billion and free cash flow (FCF) of $4.2 billion. This is a usual occurrence, as the company is now a scaled operator that produces consistent profitability. That can't be said about most growth tech enterprise out there.
Management expects FCF to total $5 billion in 2024. Because this is the money left after reinvesting in the business, they also plan to spend that same amount to repurchase shares. That's a smart move.
Cheap valuation
PayPal shares have gotten hammered, and they trade well below their all-time high. The stock is ridiculously cheap, as sentiment remains extremely pessimistic. Shares sell for a forward price-to-earnings ratio of just 15.2.
That valuation represents a substantial discount to the S&P 500. However, based on some of the positive attributes I mentioned above, it's not hard to argue that this is a better-than-average enterprise that deserves more respect from the market.
If PayPal is able to increase its revenue and earnings steadily over the long term, then I believe the valuation multiple should move higher. This could lead to impressive gains for shareholders.
For those investors who can put more capital to work and extend their time horizons, the chances of becoming a millionaire from this stock are increased.
