In This Article:
PayPal (NASDAQ: PYPL) is a leader in the electronic payments niche of the broader financial services industry but hasn't been too kind to investors in recent years. Shares currently trade at an alarming 73% off their peak, which was established in July 2021.
However, there's been a renewed sense of optimism from the market, as the fintech stock has climbed 25% in the past three months (as of Nov. 18). Does this momentum make the PayPal shares a no-brainer buy that can double in five years?
Are You Missing The Morning Scoop? Breakfast News delivers it all in a quick, Foolish, and free daily newsletter. Sign Up For Free »
Solid financial performance
You wouldn't be able to tell by the stock's terrible trailing-three-year performance, but this business continues to put up healthy financial performance. Growth is still a part of the equation.
In the last quarter, Q3 2024, which ended Sept. 30, PayPal processed a whopping $423 billion in total payment volume (TPV), a figure that was up 9% year over year. All key segments, like the branded checkout solution, Braintree, and Venmo, posted solid TPV gains, indicating broad-based success.
This helped drive 6% revenue growth. Looking ahead, there's meaningful potential for the top line to continue expanding for a long time.
PayPal benefits from two key secular trends that can keep pushing it forward. The first is the rise of electronic payments, which consumers and merchants view as a safer and more convenient method of conducting commerce. The second trend propelling PayPal is the rising popularity of online shopping.
Right now, brick-and-mortar still makes up 84% of all retail spending in the U.S. There's a lot of room for e-commerce to penetrate.
PayPal doesn't struggle in the profitability department. Its operating margin has averaged an impressive 16.3% in the past five years. Strong bottom-line performance leads to lots of free cash flow (FCF), helping to mitigate financial risk.
Key competitive advantages
Since its founding in the late 1990s, PayPal has risen to become a dominant force in the world of digital payments. Its current industry position is supported by some notable competitive strengths that remain relevant for investors to know.
As a two-sided ecosystem that consists of millions of merchants and individuals, PayPal benefits from network effects. Merchants want to plug into the platform because of the huge number of consumers that have accounts. This provides a large potential pool of revenue-generating opportunities.