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This Payment Processor is a Tech Stock

Stock (Symbol)

PayPal Holdings (PYPL)

Stock Price

$59

Sector
Financial
Data is as of
August 8, 2017
Expected to Report
Oct 18
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
David SharekPayPal (PYPL) is a finance company that’s evolving into a tech stock. The company is doing this through Venmo, Xoom and One Touch. Two qtrs ago PayPal broke out after earnings when it said it had 6 million active accounts — up from 4.5 million a year ago — and delivered Mobile TPV of 51%. Last qtr the strong results continued (more below). PYPL has three catalysts:

  1. 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 8% of total PayPal sales, up from 7% just three months ago. Venmo grew TPV 108% YOY last qtr.
  2. 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.
  3. One Touch is a feature 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 or expanded partnerships with Chase, Citi, Wells Fargo, BofA, Google, Apple, Facebook, Samsung and Visa. Management has repurchased $600 million in stock so far this year, and just upped estimates. The stock market isn’t underestimating PayPal’s potential. The stock was $44 before earnings 2QtrsAgo and these metrics have pushed the shares to $59 as the P/E has risen from 25 to 32. This stock is hot right now — like a tech stock — and since PYPL just beat the street, upped estimates, and had profit growth accelerate from 19 to 28%, I feel the stock can continue a strong move higher.

One Year Chart
Nice breakout after earnings were announced 2QtrsAgo. A the time profits were only expected to climb 20% the next two qtrs, but people somehow felt they would come in better than that. And they did last qtr, as PYPL beat the street with 28% profit growth on a 18% gain in sales. Qtrly profit Estimates are 23%, 21%, 18% and 15% and PYPL has beaten estimates the last 2 qtrs. The Est. LTG of 19% a year is good and the P/E of 32 isn’t too high a price to pay for this potential.
Fair Value
Last qtr I said PayPal’s P/E should be 32 to 35 and I put my Fair Value at 32x earnings. This qtr I increase it to 35x. I mean honestly with profits now growing faster, the P/E could go towards 40. But 2017 estimates have only grown from $1.73 to $1.78 and $1.84 the last three qtrs. I feel these need to climb faster for the P/E to get to 40.
Bottom Line
PayPal is on the cutting edge with digital payments, and the idea of allowing transfers to friends for free gets more users and then real revenue from businesses that accept either PayPal or Venmo. Right now, PayPal is rising like a tech stock — and rightfully so. I like this stock a lot, and have it ranked 17th in the Growth Portfolio Power Rankings. I didn’t put the stock in the Aggressive Growth Portfolio because profits weren’t growing 20% yet, and won’t add it now it’s up more than 20% since it broke out in April.
Power Rankings
Growth Stock Portfolio

17 of 33

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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