After a tough start to the year that saw shares fall 6% in the first half of 2024, PayPal (NASDAQ:PYPL) is on its way up and is winning over investors in a remarkable way. The fintech stocks is up 42% over the past six months, bringing year-to-date gains to 39% (as of December 18), well ahead of the broader S&P500.
However, the shares are still trading a worrying 72% below their peak price. Long-term investors can still consider initiating a position in PayPal. Is it a smart stock to buy for 2025 and beyond?
The positive momentum for PayPal stock started when the company reported financial results for the second quarter of 2024 (ending June 30). During that three-month period, the company posted double-digit growth in total payment volume (TPV), with growth operating margin driven by cost control. In addition, management has raised full-year adjusted earnings expectations.
But then the company reported weaker-than-expected third-quarter revenue, with fourth-quarter expectations lower than market forecasts. The stock immediately fell 7% after the news on October 29.
The investment community appears to have shrugged off the digital payments giant’s mixed results in recent months, continuing to push the shares higher. It’s worth pointing out how important improvement is market sentiment has been for PayPal.
The stock is up 42% in the past six months. But this was mainly caused by a price-earnings ratio (P/E) that increased by 35% in the same period. Whether it’s a combination of PayPal’s solid financials, improving macro conditions, and/or the opportunity for regulatory easing, the market has become more bullish on the company.
Investors who can look past the stock’s performance in recent years will have no trouble realizing that PayPal’s business is actually on very solid footing. The company remains strong in key metrics, indicating the health of its business.
TPV rose 9% year over year to $422.6 billion in the third quarter. That figure was 136% higher than the third quarter of 2019 before the pandemic. PayPal has certainly benefited from the popularity of online shopping during the health crisis, but has been able to build on these gains.
CEO Alex Chriss is hyper-focused on creating a more efficient organization. Operating expenses rose 3% in the third quarter, well below the 6% gain in net sales, thanks to cost-control efforts that haven’t stopped PayPal from continuing to invest in marketing and product development.
The results are visible in PayPal’s profitability. After bringing in $4.2 billion in free cash flow in 2023, executives predict $6 billion will be generated this year. This remains a financially sound company, with $16.2 billion in cash, cash equivalents and investments on the balance sheet, compared to $12.4 billion in debt.
After that massive share price increase in just six months, investors are rightly wondering whether it’s too late to jump on the PayPal bandwagon. But I urge you to always think long termwith an emphasis on the next five years.
At the time of writing, shares are trading at a price-to-earnings ratio of 20.5. Not only is that less than half their average historical multiple of almost 45, it’s a discount to the broader S&P 500. While not as attractive as earlier this year, I still believe the current valuation is reasonable .
The potential for steady revenue and profit growth, coupled with the possibility that the valuation will increase, means that shareholders who buy PayPal stock have a chance to be rewarded in 2025 and beyond.
If our analyst team has a stock tip, it could be worth listening to. After all, Stock Advisors the total average return is 901% – a market-shattering outperformance compared to 173% for the S&P 500.*
They just revealed what they believe to be the 10 best stocks for investors to buy now… and PayPal made the list, but there are nine other stocks you might be overlooking.
View the 10 stocks »
*Stock Advisor returns December 16, 2024
Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
PayPal is up 42% in six months: does it make sense to buy shares for 2025 and beyond? was originally published by The Motley Fool
