PayPal (NASDAQ: PYPL) stock has experienced a major collapse recently. Back in mid-2021, shares in the payments company were trading above $300. Today however, they can be snapped for $62.
I own some PayPal stock myself, so the decline here has hurt my portfolio. Should I take advantage of the lower share price and buy more shares to boost my holding? Let’s discuss.
The story has changed
Since I bought PayPal stock (I bought shares on several occasions throughout the pandemic), a lot has changed.
For a start, the company has changed its strategy. Back then, PayPal had plans to grow its customer base from around 400m users to 750m users. So, there was a clear growth strategy in place.
Early last year, however, it announced that it would no longer be pursuing this goal and that instead, it would be aiming to boost user engagement. This made the strategy less clear and also led to concerns over management’s credibility.
Secondly, there’s now management uncertainty. Recently, CEO Dan Schulman announced that he will be stepping down as boss at the end of 2023. However, the firm is yet to find a replacement. This lack of succession plan is not ideal.
Third, PayPal is facing more competition. The competitor that a lot of investors are worried about is Apple. Recently, Apple has expanded its payments/financial services offering with new features such as Buy Now, Pay Later, high-interest savings accounts (in the US), and Tap to Pay (where merchants can accept payments on their iPhones). As a result, it looks like the tech giant could potentially steal significant market share from PayPal going forward.
Finally, a slowing economy has led to customers spending less on big-ticket items. This appears to be having an impact on PayPal’s profit margins. Recently, the company told investors that it was lowering its estimated adjusted operating margin expansion for 2023 to 100 basis points from 125 basis points.
So overall, the story here is now very different to what it was when the stock was trading at $300. Today, there are quite a few issues to be concerned about.
Fallen too far?
Having said that, the share price fall looks excessive, to my mind.
PayPal expects to generate earnings per share of $4.95 for 2023. This gives the stock a forward-looking price-to-earnings (P/E) ratio of just 12.6 right now.
That valuation seems too low to me. Even with all of the challenges I mentioned above, I think the company deserves a higher multiple.
The low valuation is not the only reason to be optimistic here, however.
Another reason to be bullish is that activist investor Elliott Management recently took a stake in the company. Activist investors generally aim to help businesses achieve their full potential.
Meanwhile, there’s also the growth of the e-commerce industry. In the years ahead, this industry is projected to grow by around 11.5% per year. This should provide tailwinds for PayPal.
It’s worth noting that for the first quarter of 2023, the company reported total payment volume growth of 12% on an FX-neutral basis, so it’s still growing at a healthy rate.
Weighing everything up, I think PayPal shares offer value right now.
Will I buy more? Potentially.
There are a few other stocks I want to buy first, however.
