The payments industry is full of lucrative businesses. Just look at Visa, Mastercard, and American Express. But relative newcomer PayPal (PYPL -0.05%) has struggled mightily in recent years, despite past success. And its investor base has paid the price.
This fintech stock trades at a gut-wrenching 83% off its record high of $305.13 (as of Sept. 29), set in July 2021. Are shares too cheap to ignore right now? Prospective investors will understand that there's only one thing that would send the stock price back to its previous all-time high.
Image source: PayPal.
Branded checkout needs to thrive once again
From the second quarter of 2021 to the most recent quarter (Q2 2026 ended June 30), PayPal's total payment volume (TPV) rose 56%. This helped drive revenue 40% higher during that time. What's more, the company's free cash flow grew by 64%.
While not Earth-shattering growth rates, these are still encouraging financial trends. But despite the fundamental momentum, PayPal's shares have wildly disappointed investors.
I think the culprit is the company's branded checkout solution, which displays the PayPal button for consumers to use when making purchases. This is the company's crown jewel segment, as it's been the most lucrative in the past. In the first and second quarters, TPV here was up just 2%.
This might signal that the PayPal brand is losing its sway among merchants and consumers. Competitive forces are intense these days. Apple Pay is perhaps the most obvious threat, leveraging its advantage of being embedded in the most popular hardware devices.
Furthermore, PayPal's weakness in branded checkout could suggest that its user base is more economically sensitive. Because the platform leans toward discretionary spending activity, the current macroeconomic backdrop could be a headwind as these consumers pull back.
NASDAQ: PYPL
Key Data Points
How patient are you willing to be?
For the stock to have a chance at reclaiming its record high, the branded checkout solution has to start picking up steam. This isn't guaranteed, of course. And given trends over recent years, investors are losing confidence.
But if you're still bullish on the business, the cheap price-to-earnings ratio of 10.2 makes this a value stock candidate. And for what it's worth, PayPal remains firmly profitable. It's using FCF to repurchase shares aggressively. This could provide a floor for the stock price, although investor patience will be tested. Shares have been beaten down for a while.
PayPal investors could earn a quick profit if a suitor acquires the business. In July, PayPal rejected a $53 billion takeover bid (priced at $60.50 per share, still well below the all-time record) from Stripe and Advent International, so the board certainly signaled that it wants a much higher offer. Sound investing, however, isn't predicated on guessing when a takeover will happen.
This company has built a scaled global platform and pioneered digital payments for over two decades. But PayPal stock faces a challenging road ahead. I wouldn't bet on it rising 466% to get back to its peak price.
