This super stock is owned by Cathie Wood, Terry Smith, and Nick Train. I’d buy it today

PayPal stock is owned by a number of high-profile fund managers including ARK’s Cathie Wood and Fundsmith’s Terry Smith. Edward Sheldon sees it as a buy.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

PayPal (NASDAQ: PYPL) is a stock that is owned by a number of top fund managers. Not only is it owned by ARK’s Cathie Wood – who is one of the most popular portfolio managers on the planet right now – but it’s also owned by Terry Smith and Nick Train – two of the UK’s top stock pickers.

Recently, PayPal shares have experienced a pullback. After rising above $300 in mid-February, they have pulled back to around $245. I think this pullback has created a nice entry point. Here’s a look at a few reasons I’d buy PayPal stock today.

PayPal stock: strong Q1 results

PayPal’s recent first-quarter results show that the digital payments company is growing at a rapid rate at present.

For the quarter, Total Payment Volume (TPV) came in at $285bn, up 50% year-on-year, while revenue for the period was up 31% year-on-year to $6.03bn. Non-GAAP earnings per share (EPS) were up 84% to $1.22. During the quarter, the company added 14.5m accounts, taking its total active accounts to 392m.

On the back of this strong performance, the group raised its guidance for the full year. For 2021, it now expects:

  • TPV to grow around 30%

  • Revenue to grow about 20%

  • Non-GAAP EPS to grow about 21% to $4.70 (the consensus estimate was about $4.57)

  • 52 to 55m new active users to be added

This level of growth is certainly impressive.

PayPal growth stock

Source: Sifted

Long-term growth potential

Looking beyond 2021, I expect PayPal to continue growing at a strong rate. One driver will be e-commerce, which is set to grow significantly over the next decade. Here, the payments company plays a key role in the industry. When online retailers offer PayPal as a payment option, sale completion rates tend to be much higher.

Another growth driver will be the shift away from cash towards digital wallets and electronic payments. A recent study from Juniper Research found that total spend through digital wallets will exceed $10trn in 2025, up from $5.5trn in 2020. This structural shift in payments should benefit PayPal.

Risks

There are risks to the investment case, of course. One is in relation to competition. In the FinTech space, competition is intense. Competitors such as Visa, Square, Wise, and Revolut could potentially steal market share. PayPal will need to continue to innovate to stay ahead of the curve.

Another risk is that eBay has recently dropped PayPal as its main payments provider. This is likely to impact revenues in the short term.

Finally, there’s the valuation. Even after the recent share price pullback, PayPal shares are not cheap. Currently, the stock trades on a forward-looking price-to-sales ratio of about 11.2 and a forward-looking price-to-earnings ratio of about 52. These are high valuations, which add risk.

I’d buy this Cathie Wood-owned stock

Overall, however, I see a lot of appeal in PayPal shares. At the current share price, I’m a buyer of the stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Edward Sheldon owns shares in PayPal and Visa. The Motley Fool UK has recommended Visa, eBay, and PayPal Holdings and recommends the following options: long January 2022 $75 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A pastel colored growing graph with rising rocket.
Investing Articles

3 top shares for the ongoing stock market recovery

Although messy, I think the stock market recovery is beginning and that's why I'm now buying shares such as these.

Read more »

Mature people enjoying time together during road trip
Investing Articles

5 UK shares I bought for income of 9.5% a year

We recently bought these five cheap UK shares for their generous dividend yields. These cash payouts range from nearly 7%…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Is there still time to buy Scottish Mortgage shares?

The Scottish Mortgage share price has risen strongly in recent weeks. Should I pile into the FTSE 100 momentum stock…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Why I’d start buying shares with £250 today not £20,000 in future!

Is it worth waiting to start buying shares until one has more money to invest? Our writer doesn't think so…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

I’ve bought Diageo shares to boost my long-term passive income!

I plan to hold on to my Diageo shares well into retirement. Here's why I think it's a top stock…

Read more »

New virtual money concept, Gold Bitcoins
Investing Articles

Down 61%, are Argo Blockchain shares worth buying?

Argo Blockchain shares have tumbled in value. As a shareholder, Christopher Ruane considers what might come next for the business…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 UK dividend stocks with yields over 10%

These dividend stocks are the highest yielders on the UK market, says Roland Head. But how safe are these generous…

Read more »

Couple relaxing on a beach in front of a sunset
Investing Articles

I’d start buying shares for passive income with this pair

Our writer is looking to earn passive income via investing, and here are two leading stocks he might buy.

Read more »