Shares of popular digital payments platform, PayPal (PYPL -1.00%), soared 23% this week (as of noon ET on Friday) after payments peer Stripe and private equity firm Advent International offered to buy the company for $60.50 per share. After months of speculation that a union between the companies might be in the works, the market finally has a tangible offer price to digest.
NASDAQ: PYPL
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However, while shares have soared on the potential deal, it seems to be far from a "lock" to reach the finish line. Reuters reported that PayPal's board -- according to a person familiar with the matter -- believes the deal undervalues the company's long-term potential as it executes upon its turnaround strategy. The company's board is not alone in this thinking.
Image source: The Motley Fool.
Famed investor Michael Burry, the focus of "The Big Short" for his bet against the housing market, believes the deal greatly undervalues PayPal. Using his intrinsic value methodology, Burry believes PayPal is worth closer to $110 or $115 -- roughly 80% higher than this week's $60.50 offer. With PayPal trading at just 10.5 times earnings -- even after this week's rise -- I would tend to agree and intend to hold my shares until we see what finally happens.
Ultimately, PayPal's growth story is in the rearview mirror, but the market's pricing on the stock already accounts for that, in my opinion. I believe this is especially true when you consider PayPal's businesses from a "sum-of-the-parts" perspective. PayPal's businesses include its namesake payment processing, its white-label Braintree operations, its growing suite of financial services, and its crown jewel, Venmo, a peer-to-peer payments app with nearly 100 million users. Whereas PayPal as a whole isn't a growth story anymore, Venmo has grown total payment volume by double-digits for six straight quarters and would undoubtedly be appealing to Stripe.
Time will tell whether higher offers come in for PayPal's shares, but I'm happy to keep holding in the meantime, as I view PYPL shares as undervalued enough to hold right now -- though a declined offer could weigh on shares.
