Sometimes with stocks, you’re better off not asking too many questions and just trusting your gut. From January 2017 to January 2018, shares of Paypal (NASDAQ: PYPL
) ran up 120%. Since March of this year, they’re up about the same
. For a $200 billion company, they sure know how to move and Wall Street has not been getting in the way.
As the market leader in the digital payments revolution, Paypal has capitalized on the growth in e-commerce over recent years and positioned itself to continue leading from the front. The recent run in shares from the lows of Q1 show just how favorably the company is exposed to growth in the e-commerce space. With companies like Amazon (NASDAQ: AMZN), Shopify (NYSE: SHOP), and Wayfair (NYSE: W) having their best years ever and powering into all-time highs, Paypal is only too happy to hang onto their coattails.
And with earnings due out on Wednesday, it’s a good time for investors on the sidelines to consider getting involved.
The company’s last earnings report in the first week of pay precipitated one of the best weeks ever for their stock and set shares on the run that they’re continuing into Q3. Even though the results missed analyst expectations, year on year revenue growth of 12% and the addition of more than 20 million new accounts was more than enough to keep the bulls happy.
A few weeks later, management was doubling down on those results when they reported that across their user base of more than 300 million people, average daily use was up more than 20% year on year. The coronavirus pandemic has definitely had a silver lining for e-commerce companies and those that support them, and it has certainly helped accelerate the ongoing, albeit, slow shift away from a cash-heavy society.
Many people who previously only shopped online if necessary or as a novelty are now finding themselves making the switch more permanent as the ease of shopping from your living room beats traffic and crowds any day. This trend is only going in one direction and Paypal’s ability to cash in on it is what had Citi and Susquehanna upgrading the stock last month.
Management aren’t sitting back on their haunches either. Late last year they announced the acquisition of Honey, a shopping and awards platform, for a cool $4 billion. This was the company’s largest-ever acquisition and allows Paypal to tap into a customer’s full purchasing journey whereas previously they only appeared at the checkout. Last quarter the company launched in-store payments via QR code which support contactless transactions, something that’s become a hot priority in a post COVID world.
Towards the end of last month, there were some concerns that shares were starting to look a little frothy after the blistering run. BTIG cut the stock to Neutral because of this, citing the fact that shares were trading at 35x the consensus for FY22 EPS and that the coronavirus fuelled upside was baked into shares. They’ve trended sideways since then which is probably not a bad thing as they consolidate recent gains and build a new level of support.
All that being said, you can’t really go wrong with adding Paypal to your portfolio, be it before earnings or after. Any weakness in shares is sure to be short-lived and should be considered a buying opportunity. They were crushing it before COVID and are crushing it during COVID too. Unless you think digital payments have no future and that cash is going to be around forever, this is definitely a stock to own for the long run.
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