PayPal (PYPL) could now be a value investment. PayPal’s share price fell from $259.09 on 3 May 2021 to $92.72 on 4 May 2022.
Conversely, PayPal Holdings Inc. (NASDAQ: PYPL) reported a quarterly ending cash flow of $17.843 billion on 31 March 2022. Similarly, PayPal had $7.965 billion in cash and short-term investments on 31 March 2022.
Hence, PayPal is a cash-rich company with shares trading at $92.72 on 4 May 2022. Appealingly, PayPal is a moneymaking company that is growing fast.
PayPal makes money
PayPal Holdings (PYPL) is making money. The finance app maker reported a quarterly gross profit of $2.763 billion and a quarterly operating income of $711 million on 31 March 2022.
Similarly, PayPal reported a quarterly operating cash flow of $1.242 billion on 31 March 2022. Plus, PayPal is paying off its debts.
For example, PayPal’s total debt fell from $9.713 billion on 31 March 2021 to $8.222 billion on 31 March 2022. PayPal reported a quarterly financing cash flow of -$695 million on 31 March 2022.
PayPal is a Growing Company
PayPal (NASDAQ: PYPL) is a growing company. For example, Stockrow credits PayPal with seven straight quarters of revenue growth, ending on 31 March 2022.
Yet that revenue growth is falling. Stockrow estimates PayPal’s revenues grew by 31.92% in the quarter ending on 31 March 2021 and 6.42% in the quarter ending on 31 March 2022. In depth, PayPal’s revenues grew by 20.26% in the quarter ending on 30 June 2021, 14.05% in the quarter ending on 30 September 2021, and 12.38% in the quarter ending on 31 December 2021.
Consequently, PayPal’s quarterly revenues grew from $6.082 billion on 31 March 2021 to $6.483 billion on 31 March 2022. Similarly, PayPal’s assets grew from $72.517 billion on 31 March 2021 to $75.805 billion on 31 March 2022.
However, PayPal has less cash. PayPal’s cash and quarterly investments fell from $13.086 billion on 31 March 2021 to $7.965 billion on 31 March 2022.
Is PayPal now a Value Investment?
I think PayPal (PYPL) now displays now value characteristics. It is a growing company that is cash-rich and money-making. Yet PayPal has a falling stock price.
PayPal has a growing platform. For example, the number of PayPal accounts grew from 377 million in the fourth quarter of 2020 to 426 million in the fourth quarter of 2021, Statista estimates.
Similarly, PayPal’s total payment volume grew from $246.9 billion in the third quarter of 2020 to $309.91 billion in the third quarter of 2021, Statista estimates. In contrast, Venmo’s Total Payment Volume grew from $47 billion in the fourth quarter of 2020 to $60.6 billion in the fourth quarter of 2021. Venmo is the popular peer-to-peer (P2P) mobile app PayPal owns.
Statistics show both PayPal’s user base and payment volume are growing. Yet Mr. Market is paying less for it.
Can PayPal be a value investment?
I believe PayPal (PYPL) is now a value investment because of the falling stock price.
I think value investors need to examine PayPal because of the growth and falling stock price. Interestingly, I think PayPal now resembles a Warren Buffett value pick.
For instance, PayPal is a financial services company. Berkshire Hathaway’s (BRK.B) second and third-largest holdings on 31 December 2021 were financial services companies. Those holdings were Bank of America (BAC) and American Express (AXP).
Berkshire Hathaway (BRK.A) owned 1.01 billion shares of Bank of America and 151.61 million shares of American Express on 31 December 2021, Hedgefollow estimates. Other financial services companies Berkshire owns include US Bancoorp (USB), Mastercard (MA), and BNY Mellon (BK).
One reason to watch PayPal is that falling stock prices could drive PayPal’s management to issue a dividend. A drawback to tech stocks is the lack of dividends. Even cash-rich tech giants such as Alphabet (GOOG) and Amazon (AMZN) do not issue dividends. Falling share prices could change that by convincing management to issue dividends to make the stock more appealing.
In the final analysis, I recommend value investors investigate PayPal because it could enter value territory soon.
Originally published at https://marketmadhouse.com on May 4, 2022.
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