PayPal (PYPL) is delivering outstanding financial performance and the stock has gained nearly 50% in the past year alone. However, even the best companies can turn out being mediocre investments if the valuation is excessively high, and valuation ratios for PayPal are getting extended as the stock trades near record levels.
In this context, it makes sense to wonder if PayPal’s stock still offers attractive upside potential going forward or if the best is already in the past for investors in the company.
In order to try to answer this question, the following paragraphs will be looking at PayPal’s stock based on quantitative factors. Statistical research has proven that variables such as financial quality, valuation, momentum, and relative strength can be powerful return drivers for stocks over the long term. Let’s find out what the numbers are saying about PayPal’s stock and its potential returns on a forward-looking basis.
A High-Quality Business
The digital payments industry is growing at full speed, and PayPal is one of the main beneficiaries of such growth. The company competes against big players both in the tech industry and in financial services, but management is joining forces with many of the top players on both sides of the competitive landscape.
Over the past several years PayPal has built partnerships with Apple (AAPL), Samsung (OTC:SSNLF), Facebook (FB), and Google (GOOG) (Nasdaq:GOOGL), as well as card processors like Visa (V) and Mastercard (MA). Similarly, the company is also building alliances with the big banks, including names such as Wells Fargo (WFC), JPMorgan (JPM), and Bank of America (BAC).
Source: PayPal
Building these alliances means that PayPal is making a smaller profit per transaction on the transactions that go through the company’s partners. However, when the market opportunity is big enough, prioritizing long-term growth above short-term margin is the right thing to do.
Speaking of which, management estimates that the total market opportunity for PayPal is worth around $110 trillion over the long term, so the company certainly has a lot of room for growth if it plays its cards well over the years ahead.
Source: PayPal
The business is clearly firing on all cylinders as of the second quarter of 2018. Total revenue during the period jumped 22.9%, reaching $3.86 billion and surpassing expectations by $50 million during the quarter. Total payment volume grew 27%, reaching $139 billion. PayPal ended the quarter with 244 million active accounts, growing by 15% year over year.
