PayPal Holdings (PYPL 2.49%) is a leader in digital commerce, with a presence in almost 200 markets and payments volume of $444 billion during the second quarter (ended June 30). This hasn't made it a good portfolio addition, though. As of Sept. 3, shares are 77% below their peak from July 2021.
That type of performance can make investors forget about PayPal. But here's one reason every investor should know about this fintech stock.
Image source: PayPal.
Cheap valuation
As of this writing, PayPal shares trade at a price-to-earnings (P/E) ratio of 14.9. Since the business was spun off from eBay in July 2015, it has rarely been cheaper. In fact, the average P/E multiple during that time is 43.9. This showcases just how much the investment community has soured on PayPal.
This bargain valuation is the key reason this business should be on the radar of investors. It's a huge discount to the overall market.
Favorable qualities
Investors don't want to buy stocks just because they're cheap. That could present a classic value trap. PayPal doesn't fall into this category. It's a high-quality company.
The business operates a two-sided platform consisting of merchants and consumers. This gives it a network effect, a powerful competitive advantage that makes it difficult for PayPal to be disrupted.
Profitability is also very impressive. During Q2, PayPal posted an operating margin of 18.1%, up from 16.8% in the year-ago period. This gives management confidence that it will generate $6 billion to $7 billion in free cash flow this year, which will be used to fund share buybacks.
PayPal isn't a terrible business. It appears to be the opposite. The fact the stock is so cheap means investors should pay attention.
