Here’s why I just bought PayPal

Many fintech companies have been particularly hard hit by the recent stock market downturn. PayPal (PYPL -2.15%) is a prime example, with stocks down almost 75% from their recent highs.

Despite the poor performance of stocks, it is important for investors to realize that PayPal Company is still going strong — it’s growing and generating billions of dollars in profits a year. Here’s a rundown of the top investor concerns about PayPal and why I decided to add the stock to my own portfolio recently.

Why has PayPal taken such a beating?

There have been negative catalysts so far this year that have dragged PayPal shares lower. Its Q4 2021 and Q1 2022 earnings reports both showed user growth significantly below expectations, and the company essentially admitted that its growth target of 750 million users within a few years ( current user count: 429 million) this is unlikely to happen.

There are also recession fears and concern over a general slowdown in consumer spending, which could impact the fintech giant’s business in a number of ways. Lower consumer spending means lower transaction volume. Also, a recession usually leads to an increase in consumer loan defaults, and PayPal has quite a bit of buy-it-now-pay-later activity.

An amazing company that should weather the storm well

Make no mistake: PayPal is a fantastic company. It has 429 million active accounts between its namesake platforms and Venmo, and processes more than $1.2 trillion in annual payment volume. And despite what the stock price might suggest, the growth hasn’t exactly stopped.

In fact, PayPal’s total payment volume grew 15% year-over-year in the first quarter, and that’s on top of pandemic-fueled gains in the comparable 2021 period. 8% and the average user transacts 11% more on the platform than a year ago. And while a 9% annualized growth rate of active accounts is certainly lower than what we’ve seen in recent years, it’s hardly a cause for concern.

PayPal’s business is also highly profitable, with more than $5 billion in free cash flow expected in 2022. This, added to approximately $8 billion in cash and short-term investments on the balance sheet, gives PayPal a superior financial flexibility to invest in its own growth. , make strategic acquisitions or investments, or possibly buy back its own shares if it receives a discount to intrinsic value.

A market leader at its cheapest valuation ever

When it comes to online payments, there’s PayPal, and then there’s everyone else. The company is the undisputed leader in payment volume and continues to grow its business (although not as rapidly as in recent years). Additionally, the stock is trading at its lowest valuation on a price-to-sales basis since it split from eBay in 2015. While the stock may remain volatile for a while, now seems like a great opportunity for patient, long-term investors to add this market leader to their portfolios at a discount.

Matthew Frankel, CFP® has positions in PayPal Holdings. The Motley Fool holds positions and recommends PayPal Holdings. The Motley Fool recommends eBay and recommends the following options: July 2022 Short Calls at $57.50 on eBay. The Motley Fool has a disclosure policy.

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