We’ve heard that slow and steady wins the race, but how about just steady? Since putting in a COVID-19 low on March 23, shares of online payments giant PayPal (NASDAQ: PYPL
) have been moving just one direction, north.
Following the crash in equities through much of February and March, PayPal’s shares had fallen 35% from the all-time highs they had just set in January. A vicious haircut to be sure but investors weren’t waiting too long on the sidelines. Many flashy stocks in the tech industry started to see strong bids towards the end of Q1, even as economies were still shut and unemployment was skyrocketing, and PayPal was no different.
They’re not a brick and mortar based business and don’t offer a disposable product or service so in many ways they were always going to bounce back strong if not go on to thrive as the likes of Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX) have.
And bounce back strong and thrive they did. April hadn’t even closed out before shares had undone all of Q1’s damage and were back trading at pre-COVID all-time highs. Since then they’ve logged multiple such prints and show no sign of stopping. By the close of Monday’s session this week, shares were up a full 120% in less than four months. Not a bad move for a $200 billion company.
It must be said that this move didn’t come as a surprise to many on Wall Street. As early as March 19 when PayPal shares still had another 10% to fall before they’d hit their low, Macquarie were out with a ‘high conviction’ Outperform rating on the stock. After running an e-commerce consumer survey, their results showed preferable usage trends for PayPal over Apple Pay or Google Pay so there was every reason to think that shares were due to turn about.
In early May, even as the company missed analyst expectations for their Q1 earnings, comments from their CEO, Dan Schulman, sent the bulls stampeding into more shares. Schulman told investors that April was the company’s strongest month for net new active users and overall engagement since their IPO. With forward-looking news like that, investors were more than happy to forget about EPS and revenue being lower than expected. He also said that on May 1 the company had its largest number of transactions ever, as did their Venmo subsidiary which is very popular with the millennial market.
Upgrades and Downgrades
In June, Citi and Susquehanna were both out with upgrades on the stock, pointing to the COVID based acceleration in the overall shift to digital commerce. And for in-store purchases, PayPal’s new QR code functionality allows for completely contactless transactions meaning they’re covering all bases. With shares trading around the $177 mark this week, they’re still about 5-7% off the $186 and $190 price target put on them respectively by those two firms.
Despite all this positive momentum, there have been a few calls for caution. BMO struck a bearish tone back in May as part of their recommendation for a general shift to defensive stocks rather than high tech specialty stocks. Shares are up 25% since BMO’s downgrade so investors can make up their own minds on that recommendation.
A more recent downgrade might be cause for more serious concern. In the last week of June, BTIG cut PayPal to Neutral, feeling that shares were starting to get a little frothy after more than doubling from their March lows. It’s not an unreasonable argument but is more of a short term look than longer-term call.
We’ve seen how the fundamentals have done nothing but get stronger for PayPal over the past few months and any weakness or profit-taking in the coming weeks should be seen as little more than a buying opportunity for those still on the sidelines.
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View the "7 Great Biotech Stocks That Don’t Depend on a Coronavirus Cure".