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

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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.

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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.

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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.

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