It hasn't been a great afternoon session for PayPal investors, who have watched their shares sink by -2.8% to a price of $77.92. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. The company belongs to the Financial Services sector, which has an average price to earnings (P/E) ratio of 13.34 and an average price to book (P/B) ratio of 1.95. In contrast, PayPal has a trailing 12 month P/E ratio of 39.0 and a P/B ratio of 4.4.
PayPal's PEG ratio is 1.73, which tells us the company is overvalued in terms of its growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.