PayPal Downside Appears Limited
Fintech juggernaut PayPal Holdings Inc. (PYPL) reports Q4 2021 results after Tuesday’s closing bell, with analysts looking for a profit of $1.12 per-share on $6.9 billion in revenue. If met, earnings-per-share (EPS) will mark a slight improvement compared to the same quarter last year. The stock fell 10.5% in November after missing Q3 revenue and lowering 2021 guidance, and has shed another 21% through January, dropping to a 20-month low.
One-Time Growth Surge
The company booked historic gains during the first year of the pandemic, more than tripling in price into February 2021. It’s fallen from grace with other COVID beneficiaries since that time, fueled by capital rotating into stocks with lower valuations and higher growth potential. The company’s business model is just fine despite the downturn, but the massive baby boomer shift into paperless transactions during the crisis was a one-time event.
Jefferies analyst Trevor Williams downgraded PayPal to ‘Hold’ earlier this month, noting “With valuation still about 5x above pre-COVID averages, little room for expansion…especially with a muted growth outlook, and rising competition. To be clear, we do not believe anything is broken in the business (evidenced by the mid-20’s ex-eBay rev growth in 3Q21) or that competitive pressure has manifested in results. Our call is simply that the multiple is unlikely to expand until there is restored confidence in the med-term targets (2H, at earliest).”
Wall Street and Technical Outlook
Wall Street consensus now stands at a ‘Moderate Buy’ rating based upon 33 ‘Buy’, 5 ‘Overweight’, 6 ‘Hold’, 0 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $172 to a Street-high $342 while the stock is set to open Monday’s session about $8 below the low target. This disconnect with Main Street investors highlights extreme caution about the stock’s growth potential in coming quarters.
PayPal broke out above 2019 resistance at 121 in May 2020, entering an historic uptrend that stalled above 210 in September. It cleared that barrier in December 2020, lifting into 310 in February 2021. A failed July breakout attracted aggressive selling pressure, triggering a steep decline that’s cut the stock’s price in half. It just violated the 200-week moving average for the first time in its public history, with a successful defense of that level likely in coming weeks.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.