The market euphoria is encouraging speculators to accumulate online payment firms and fintech stocks. PayPal (PYPL), viewed as a value stock, is among the favorites. However, PYPL stock is a value trap.
PayPal trades at high non-GAAP price-to-earnings multiples. The stock-to-cash flow multiple is also unattractive. Until the firm cuts down on promotions, marketing, and stock-based compensation, investors should not consider this stock.
Opportunity
PayPal’s new Chief Executive Management is a potential catalyst. Alex Chriss took the position on Sept. 27, 2023. He will need at least 2-3 quarters to re-evaluate the company’s business strategy. In effect, shareholders may ignore Morgan Stanley’s downgrade on PayPal shares.
Related Investments
Global Payments (GPN), Adyen (ADYEY), Nuvei (NVEI), and Block (SQ) are some of the other related fintech stocks to consider. Among them, SQ, GPN, and ADYEY shares have strong growth prospects. However, they still trade at high valuations like PayPal shares.
PayPal is a value trap for now. It can get out of that label when its new initiatives, such as new features in invoicing for small businesses, increase customer satisfaction levels. Venmo P2P and its credit card may compete effectively, too.
Wait for the firm to post stronger compounded annual growth rates. When that happens, PYPL stock is a buy.
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