One name I have seen popping up more and more often in everyday life is Paypal (NASDAQ: PYPL). From online shopping to coffee shop signs, I see the name more than ever. Yet Paypal stock has fallen 70% in a year.
I think that makes it a bargain for my portfolio. I bought some shares in the past few days. Here is why I am excited by the prospects.
Strong business growth
One approach to investing is to pay attention to market trends one personally spots, then investigate the businesses further. We have all heard people say they wish they had invested in a company when they first started using a product that then went on to become very popular.
Paypal is hardly new. But it does seem to me to have taken on more prominence over the past several years, partly as a result of a rise in online shopping during the pandemic. Looking at the numbers, revenue has more than doubled in the past five years. Meanwhile, earnings nearly tripled.
So not only is the business growing quickly, earnings are going up faster than sales. That is a demonstration to me of the attractiveness of a scalable business model like that used by the digital payments firm. It could help the company grow profit margins in future.
Paypal stock has tumbled
Despite that, Paypal stock has fallen 70% over the past year.
Clearly, not all investors have shared my enthusiasm for the shares lately. Partly, I think that is due to investors losing enthusiasm for some “stay at home” shares that soared during the pandemic. But even allowing for that, Paypal has fallen. It has not traded at this year’s levels since 2018, except for a brief period in the March 2020 stock market crash.
Investors just do not seem very excited by the outlook at Paypal. In the first quarter, net revenue growth of 7% was decent though not spectacular. But more alarming was the drop in earnings per share. They more than halved compared to the same quarter last year.
The company will announce second-quarter results this week. I am hoping the financial performance will show signs of improvement. I think concerns about that are part of the reason Paypal shares have tumbled.
Why I bought
As a long-term investor, though, quarterly earnings can be a useful data point for me but must be seen in a much fuller context.
Paypal’s installed base of customers and merchants gives it a large business moat. It also has a strong brand. In those ways, I see it as similar to businesses like Visa and Mastercard. That has the potential to help the company make big profits for years if not decades to come. Putting Paypal stock in my portfolio now will hopefully help me reap the rewards in future.
