Is PayPal Stock a Buy? | The Motley Fool

PayPal (PYPL -0.36%) has seriously crushed investors' portfolios, as the stock is down 79% from its peak price set in July 2021. Even this year, when the overall market has bounced back from last year's double-digit loss, this payments business has gotten hammered. 

Is this leading fintech stock worth buying right now on the dip? Let's take a closer look at the pioneer of digital payments. 

Pandemic growth is over 

While the COVID-19 pandemic was a huge headwind for many companies out there, it turned out to benefit PayPal tremendously, as revenue, total payment volume (TPV), and active accounts surged in 2020 and 2021. Flush with cash and limited in places to spend it, consumers turned to online shopping, which leans toward discretionary spending, something that propelled PayPal. 

But things haven't been so rosy over the past several quarters. Inflationary pressures, rising interest rates, and an uncertain economic backdrop have negatively impacted many businesses, including PayPal. Its revenue was up just 8% in 2022, the slowest rate of growth since being spun off eBay in 2015. And through the first six months of 2023, sales were up 8% again. 

Even more worrying is that PayPal's user base is shrinking. As of June 30, the company counted 431 million active accounts, down from 435 million at the end of last year. Investors likely aren't accustomed to seeing this once darling of a growth stock pump the brakes on its gains, and that's why shares have been under so much pressure. 

Leadership change 

Dan Schulman, PayPal's CEO since the eBay spin-off, is set to retire at the end of this year. He led the payments company to huge gains for most of the past eight or so years, but he has certainly made some mistakes that shareholders should be disappointed with. 

A valid argument can be made that under Schulman, PayPal spent way too much money on unnecessary acquisitions that weren't essential to the core of the business, like $4 billion for shopping-rewards platform Honey and $2.7 billion for Japanese buy now, pay later specialist Paidy. This capital could've been returned to shareholders in the form of stock buybacks, which probably would've helped support the stock price somewhat. 

Additionally, Schulman's lofty targets, set at the start of 2021, of PayPal reaching 750 million users and $50 billion in revenue by 2025 were taken back once he realized that the pandemic surge wasn't going to last indefinitely. To be fair, a lot of executives can be blamed for extrapolating strong demand trends into perpetuity. But the magnitude of Schulman's incorrect forecast is striking. PayPal's trailing-12-month revenue totaled $29 billion -- a long way off from hitting $50 billion anytime soon. 

Alex Chriss, executive vice president and general manager of the Small Business and Self-Employed Group at Intuit, is slated to take over the lead role. A fresh perspective could be exactly what this company desperately needs. And a new face could bring a renewed sense of optimism from shareholders. 

Favorable qualities 

There's certainly a lot for investors to unpack with PayPal, namely its slower growth prospects and new CEO, but there are still positive attributes to get excited about. While the user base appears to be leveling off a bit, it's encouraging to see TPV increase 11% to $377 billion in the latest quarter. This means that existing accounts are engaging more with the service, demonstrating that there are some loyal PayPal customers out there. 

Another reason to like this business is its favorable financial situation. PayPal's adjusted-operating margin in Q2 was 21.4%, and it generated $3.7 billion in free cash flow in the last 12 months. This isn't some unprofitable company struggling with its finances. Moreover, PayPal currently has a net-cash position of $3.9 billion. 

And because the stock has gotten so crushed, it's dirt cheap right now, trading at a forward price-to-earnings ratio of 12.8. That's a much lower valuation than the S&P 500. So, despite PayPal's recent struggles and pending leadership change, it's very easy to see why value-focused investors would eye this stock as a good buying opportunity. 

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