Summary
- PayPal lost more than 15% in value after a double beat on revenue and EPS.
- Analysts are causing fear by overblowing lower operating margin guidance when prices are low.
- On a valuation aspect, PayPal is by far the cheapest in the sector, with the stock trading at 12.5x forward price-to-earnings ratio and a free cash flow yield of 7.17%.
- Although stock-based compensation is still way too high, it is finally shrinking while increasing the effectiveness of the $4 billion in stock buybacks for FY23.
PayPal (NASDAQ:PYPL) has lost favour of investors since the end of 2021 and has been consolidating over the past year. As some of you already know, I like to be a contrarian, this time around PayPal is my contrarian idea. The sentiment shifts in growth stocks are so volatile and reckless that it is quite easy to take advantage of. If no-one wants the stock, I will buy it. We have seen this with Meta Platforms (META), were I told investors that all the worries they had were unimportant as their core cash flow business was still intact. Meta easily doubled over the span of a few months. PayPal is currently not as cheap as Meta once was, but it is getting close. Nonetheless, PayPal is still growing revenue and EPS so it could also deserve a higher multiple than Meta. Let’s dive in.
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