To say that Wall Street has dismissed PayPal (PYPL +1.97%) would be an understatement. Even after a recent post-earnings pop, PayPal trades for 75% less than its all-time high, and has a P/E ratio that implies very little growth in the years ahead.
However, I have the opposite view. Not only do I think PayPal has a bright future ahead of it, but I believe it could be one of the most undervalued and overlooked opportunities in a mostly expensive stock market. Here's why.
Leadership has been working hard
If you aren't familiar, PayPal hired former Intuit (INTU +1.74%) executive Alex Chriss to be its CEO in late 2023, and Chriss proceeded to hire an all-new (and impressive) executive leadership team to help return the company to profitable growth and take the business to the next level.
Image source: Getty Images.
It's tough to overstate how much is happening behind the scenes. In a detailed investor presentation earlier this year, management revealed ambitious plans to combine its platforms into one cohesive ecosystem, leverage AI to produce innovative solutions, and much more.
Well, management got to work quickly after Chriss assembled an all-new leadership team in early 2024. The company announced the creation of an advertising platform, rolled out its well-received Fastlane checkout product, and introduced a debit card with best-in-class rewards. And it looks like the pace of innovation is just getting started.
Just to name some of the most exciting recent developments:
- In September, PayPal partnered with Google to develop innovative commerce solutions, as well as to integrate PayPal solutions across Google's various platforms. This lets PayPal leverage Google's massive AI capabilities.
- PayPal announced 5% cash back this holiday shopping season on PayPal buy now, pay later purchases.
- PayPal announced PayPal Ads Manager, which will allow small businesses to seamlessly opt in and create ad impressions for their platforms, starting in early 2026. This is a win-win for PayPal and its millions of small business customers, who can use ads to monetize the traffic to their online stores.
- PayPal announced a partnership with Bilt to allow members to complete monthly housing payments directly through Venmo, expected to begin in early 2026.
- PayPal announced a partnership with OpenAI to become the first payment solution integrated into ChatGPT, also expected to launch in 2026. At the same time, the company launched a suite of agentic commerce tools for its customers.
The hard work is paying off
PayPal's recent results show the strength of the business. In the third quarter, revenue increased by 7% and operating margin expanded year-over-year. On an adjusted basis, earnings per share increased by 12%.
Beyond the headline numbers, PayPal's total payment volume (TPV) grew by 8% to an annualized rate of more than $1.8 trillion. The business generated $2.3 billion in adjusted free cash flow, and the company spent $1.5 billion on buybacks to take advantage of the stock's depressed valuation (more on that in a bit).
In fact, PayPal is so profitable and financially strong that in addition to its aggressive buyback plan, the company decided to pay a dividend for the first time ever, and is targeting a payout ratio of 10% of adjusted net income going forward.
Management also raised its full-year EPS guidance significantly, now expecting $5.37 per share of adjusted earnings at the midpoint of its range, representing 15% year-over-year earnings growth.
A cheap valuation, but for how long?
Despite its stellar results, as well as a ton of promising initiatives that aren't reflected in the numbers yet, PayPal stock is largely overlooked by Wall Street. With a P/E ratio of just over 14 times expected 2025 adjusted EPS, it's fair to say that analysts aren't putting too much faith in PayPal's ambitious 20%+ annualized earnings growth target. However, with the company making all the right moves, I think it's entirely possible, and that investors who buy shares at these levels will be handsomely rewarded.
