Stock (Symbol) |
PayPal Holdings (PYPL) |
Stock Price |
$49 |
Sector |
| Financial |
Data is as of |
| May 7, 2017 |
Expected to Report |
| Jul 19 |
Company Description |
 PayPal Holdings, Inc. is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants. The Company’s combined payment solutions, including its PayPal, PayPal Credit, Braintree, Venmo, Xoom and Paydiant products, compose its Payments Platform. It offers consumers person-to-person payment solutions through its PayPal Website and mobile application, Venmo and Xoom. Source: Thomson Financial |
Sharek’s Take |
 PayPal (PYPL) is leading the digital payment revolution. Investors know this, and have sent to shares zooming higher. PayPal’s total purchase volume (TPV) growth was a solid 25% last qtr on a currency neutral basis and the company added 6 million new active accounts — up from 4.5 million last year. New customers means more transactions in the future. Mobile TPV was up 51% year-over-year (YOY) and now accounts for 1/3rd of revenue. PayPal has a growth catalyst in Venmo. Venmo is a free digital wallet that lets you make and share payments with friends for free (such as splitting dinner), and move money from Venmo to your bank in one day. Merchants pay 3% if you pay them with a credit card (that’s about what PayPal charges). Venmo is an app for your Apple or Android devices and is 7% of total PayPal sales, up from 4% a year ago, with TPV up 114% YOY. The company has another growth catalyst in Xoom. Xoom allows you to transfer money to other countries, and even let’s you ask for money from someone. Xoom is a big help to immigrant workers in the U.S who send money home. PayPal’s new One Touch feature was launched last Summer and lets people buy things online in a few clicks by pushing the yellow “Check out with PayPal”button. The company also recently signed deals with Wells Fargo and Google. Management even found time (and money) to buyback $500 million in stock last qtr. PYPL spiked after it reported profits last qtr, and I feel this is the beginning stage of a multi-year move higher as moving money via your cell phone is becoming an everyday occurrence. I will purchase PYPL today in the Growth Portfolio. |
One Year Chart |
 Note: these charts were developed on 5/7 when PYPL was $49. Today, 6/2, the stock is $53. Profits rose just 19% last qtr and blew past views of 11% growth. Sales increased 17%. Qtrly profit Estimates are 19%, 20%, 19% and 16%. Now if PYPL continues to beat the street, it might be delivering 25% profit growth or more the next few qtrs. But 2017 profit estimates only increased from $1.73 to $1.78, which is less than I had imagined. The P/E of 28 is reasonable for a rapidly growing credit card company. |
Fair Value |
 The reason I think a P/E of 28 is too low for PYPL is that Visa and MasterCard grow profits in the mid-teens and get P/Es of 28. PayPal’s P/E should be 32 to 35. My current Fair Value is 32x earnings, which is $57 a share this year and $68 next year. But I may increase the P/E next qtr, and estimates could rise again as well. |
Bottom Line |
 PayPal stock has just taken flight just as mobile payments are becoming more mainstream. Although profit growth isn’t 20% yet, the surge in new accounts will likely lead to more payments ahead. PYPL will be added to the Growth Portfolio today and will rank 16th in the Power Rankings. I won’t add the stock to the Aggressive Growth Portfolio because profits aren’t growing rapidly and the stock’s not really undervalued. |
Power Rankings |
Growth Stock Portfolio
16 of 30Aggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
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