For companies in the fintech and payments industry, it’s just brutal right now. Somehow, every week and every month, they find a way to reach new lows. PayPal Holdings, Inc. (NASDAQ:PYPL) has not escaped this trend. In fact, PYPL stock has surprisingly fallen from a high of $310 to just under $74 in the 12 months.
Normally, when a business drops more than 75% from its 52-week highs, there is reason to question whether said business is a viable business. Here, however, PayPal is not in particular financial difficulty. On the contrary, the company remains very profitable and its 2022 profits were not even particularly terrible.
Rather, PayPal is the story of a company that went from being grossly overvalued last year to, arguably, a bargain today.
Let’s put some numbers on that, though. How much should PayPal be worth? Let’s first see what an analyst predicts for the company.
|PYPL||PayPal Holdings, Inc.||$73.71|
Is PayPal stock worth $139 per share?
According to a professional, the answer is yes. of the morning star Brett Horn, senior equity analyst, believes just value at $139. With this price target in mind, PYPL stock is close to a 50% discount to current levels.
Horn recognizes that there is a wide range of potential outcomes for PayPal. However, in the majority of cases, he says, PayPal will be worth much more than what it is currently trading at.
Importantly, Horn notes that PayPal has very little exposure to cryptocurrency. Bitcoin (CCC:BTC-USD) and other cryptos make up a minimal share of PayPal’s revenue today. And that wasn’t particularly likely to change in the future.
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Instead, PayPal used crypto as an engagement marketing tool to attract consumers to its Venmo platform. Maybe PayPal will have to spend more to market the peer-to-peer app in other ways as the cryptocurrency crashes. However, don’t expect PayPal revenue to drop just because crypto is in freefall.
Everyone calls it an “outperformance”
To be sure, there is a wide range of opinions the low. Capital IQ has an average “outperform” rating on the stock with price targets ranging from $82 per share to $220. On Thursday afternoon, there were few targeted cuts except for Credit Suisse’s $5 cut to $95 per share. Yet they still have an “outperform” tag on the stock.
Analysts see PayPal’s earnings falling moderately in 2022 after a strong year in 2021. However, even with the slowdown in 2022, analysts see the company earning $3.90 per share in 2022.
Looking ahead, analysts see that figure rising to $4.83 in 2023 and $5.87 in 2024. That puts PYPL stock at around 19 times this year’s earnings, with a drop to less than 13 times the earnings forecast for 2024. It seems the market is skeptical that PayPal will actually hit those estimates. Since, if it just hits that 2024 level, it’s hard to deny that stock is business at today’s prices.
stuck in the middle
One thing that has potentially prevented PYPL stock from attracting a larger bid is that it is currently caught in a delicate position. It’s not the cheapest payout stock. It’s also not the highest quality. Being in the middle has kept the deep value crowd or higher corporate investors out of PayPal at this time. Let’s quantify that.
There are very cheap payment actions such as Global Payments (NYSE:GPN) today. Global Payments is a merchant acquirer for credit card companies and has been quick to acquire fast growing payment businesses to add to that as well. GPN shares are selling today at less than 12 times earnings and just 9 times estimated earnings for 2024. For another, Fiserv (NASDAQ:FISV) is a payments giant with a fast-growing small merchant acceptance platform, Cloverwhich should earn a higher valuation than the rest of its businesses.
And, at the other end of the bar, low-risk credit card giants such as Visa (NYSE:V) are also interesting. Visa shares have slipped more than 20% from their highs and are selling at one of their lowest P/E ratios on record. The appeal of a credit card company like Visa is that there is no credit risk. Visa simply collects fees on each of the millions of transactions that pass through its network every day. Visa has a long history of double-digit annualized clip revenue growth and is on sale now.
PYPL shares verdict
Personally, I see more value in the cheaper names in the industry, such as Global Payments and Fiserv. And for the industry’s so-called “sleep well at night” choices, it’s easier to board with Visa and MasterCard (NYSE:MY).
That said, there is a good argument that almost the entire payments industry is currently undervalued. Same ARK Fintech Innovation ETF (NYSEARC:ARKF) is trading nearly 70% below its 52-week high.
PayPal is not my preferred value in its sector. But if the entire sector is poised to rise, PYPL stock will rally with it. If you’re particularly drawn to PayPal’s distinct set of businesses and future growth opportunities, this is a good entry point.
A note for today. PayPal action will move into the Russell 1000 Value Index and its weight in Russell 1000 Growth Index will decrease. This rebalancing move will likely result in a volatile June 24 session for PYPL stocks.
At the date of publication, Ian Bezek held a long position in GPN and V shares. The views expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.