It's been a tough road for PayPal Holdings (PYPL 2.06%) over the past several years. The fintech giant surged during the stock market bubble that followed the COVID-19 pandemic, but the stock has seemingly only gone lower since then.
PayPal has indeed had its share of challenges in an increasingly competitive fintech industry. And yes, cheap stocks can go lower. Nobody wants to catch the proverbial falling knife.
But stocks represent living, breathing businesses. Like a rubber band, they can stretch, but only so far. PayPal may be close to that point, and there's a potential game changer on the horizon, a catalyst that could snap the stock back, generating massive returns in the process.
Here's why I predict that 2026 will be the year of PayPal.
Image source: PayPal Holdings.
The stock's cheap valuation sets up a big move
Regardless of the market's narrative on PayPal, the company remains a global fintech leader. The company boasts a whopping 438 million active accounts. And despite the share price woes, PayPal's revenue and earnings per share have continued to grow over the past 10 years.
PYPL Revenue (TTM) data by YCharts
From a valuation standpoint, PayPal is about as cheap a bargain as you'll find. The stock trades at a price-to-earnings ratio of just over 11 today. That's more appropriate for a business circling the drain, not one that has grown its revenue and earnings by 246% and 353% respectively, over the past decade.
Management has repurchased shares and continues to do so. The share count has plunged by 20% in just the past five years. The PayPal rubber band keeps stretching, and could be setting up for a big move. Now, it just needs something to release all that pent-up energy.
This could be the spark that ignites PayPal in 2026
CEO Alex Chriss assumed his role at PayPal in late 2023. Since then, he has pushed the company to reinvigorate its brand and embrace artificial intelligence. That's where I see the potential catalyst for the stock.
NASDAQ: PYPL
Key Data Points
In late October, PayPal announced a partnership with OpenAI, the developer of ChatGPT. OpenAI has begun building third-party app integrations and commerce capabilities within ChatGPT.
For instance, someone could use the DoorDash integration to ask ChatGPT for a recipe, and it will assemble a grocery delivery order right within the conversation. It removes steps, clicks, and thought from the transaction -- all things that could otherwise lose a sale.
The partnership will see PayPal power OpenAI's checkout process with its payment technology and link to its global merchant network. It could become a significant growth catalyst. ChatGPT was the eighth-most visited website in December and is the leading AI app.
If this begins to move the needle for PayPal, investors may finally notice how the stock's valuation jumps off the page, and that rubber band moment will finally arrive. Time will tell, but PayPal is shaping up as a potential home run stock idea for this year.
