PayPal is Trading Dirty Cheap at 11.86X P/E: Buy or Hold the Stock?

Core Viewpoint - PayPal (PYPL) shares are currently undervalued, trading at a forward 12-month P/E of 11.86X, significantly lower than the industry average of 22.34X and competitors like Visa, Mastercard, and Apple [1][5][19] Valuation and Performance - PayPal's P/E ratio is 11.86X compared to Visa's 27.39X, Mastercard's 31.51X, and Apple's 26.46X, indicating a cheaper valuation [1][5] - Year-to-date, PayPal shares have declined by 25.7%, underperforming Visa (up 7%), Mastercard (up 2.5%), and Apple (down 17.8%) [5][6] Competitive Landscape - The decline in PayPal's stock is attributed to increased competition in the fintech sector from companies like Visa, Mastercard, and Apple Pay, as well as a challenging macroeconomic environment [5][19] Growth Prospects - PayPal's strong portfolio and two-sided platform are enhancing relationships with merchants and consumers, driving total active accounts [11] - The adoption of Fastlane is expected to increase transaction volumes, with projected growth in transaction margin of at least 5% in 2025 and high-single-digit growth for 2027 [12][13] - New value-added services, such as FX-as-a-service and network tokens, are anticipated to improve merchant experiences and drive transaction margins [14] Partnerships and Collaborations - PayPal's expanding partner base, including Fiserv, Adyen, Amazon, and Shopify, is enhancing its market prospects [15][16] - Integration with Shopify Payments and collaborations with Amazon, Apple, and Google are creating a unified experience for business owners and increasing PayPal's reach [16] Earnings Guidance - PayPal has provided a non-GAAP earnings per share growth guidance of 6-10% for 2025, with expectations of over 20% growth in the long term [17] - The Zacks Consensus Estimate for 2025 earnings is $4.98 per share, reflecting a 7.1% growth over 2024 [17] Stock Performance Indicators - PayPal shares are currently trading below both the 50-day and 200-day moving averages, indicating a bearish trend [19][21] - The stock is rated as a Zacks Rank 3 (Hold), suggesting that investors should wait for a more favorable entry point [23]