Why PayPal Might Be Worth Its Premium Valuation

Stock Market

PayPal (NASDAQ:PYPL) remains a perplexing stock. The shine has come off the fintech sector as a whole, and PYPL stock is now trading around pre-pandemic levels.

This is occurring even though its revenue is up 18% year-over-year (YOY). This isn’t based on one or two quarters. PayPal has consistently bested the top and bottom lines (on a GAAP basis) from the prior year. 

One problem that’s afflicting PYPL stock is that it has many buyers who got trapped by the upside. Investors that bought it at or near its 52-week high of more than $300 per share may be looking to sell at any rise in price. That continues to put selling pressure on the stock.  

Nevertheless, it seems something has to give. In terms of the amount of money flowing in and out, institutional investors have sold more PYPL stock than they’ve bought over the last 12 months.

However, the number of buyers easily outpaces the number of sellers. And in two out of the last four quarters, institutions have bought more than they’ve sold.

That being said, in the two quarters where the selling volume outpaced the buying volume, it exceeded it by a lot. That tells me the selling conviction is stronger than the buying conviction.  

Or does it? The median price target for PYPL stock is $178.51, a 58.3% increase from the current price. And this is despite many analysts lowering their targets for the stock in the last month. In fact, Bank of America downgraded PayPal’s rating from “buy” to “neutral.” 

There may be some short-term volatility in PYPL stock. And by some traditional valuation metrics, the stock remains overvalued. However, if you believe in the trajectory of the company’s earnings and revenue, this selloff seems overdone. If you don’t own PayPal stock, you’ll want to wait for a bullish confirmation. Otherwise, unless you need to sell, this fintech pick might be worth hanging on to. 

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. 

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

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