PYPL Stock -- What's In It For Investors?

It's been a great afternoon session for PayPal investors, who saw their shares rise 2.7% to a price of $63.2 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.

PayPal's Valuation Is in Line With Its Sector Averages:

PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, PayPal has a trailing 12 month P/E ratio of 27.2 and a P/B ratio of 3.54.

When we dividePayPal's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.72, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.

EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $17,772 $21,454 $25,371 $27,518
Operating Margins 15.7% 16.0% 17.0% 14.7%
Net Margins 13.84% 19.59% 16.43% 8.79%
Net Income (MM) $2,459 $4,202 $4,169 $2,419
Net Interest Expense (MM) $82 -$121 -$175 -$130
Depreciation & Amort. (MM) -$912 -$1,189 -$1,265 -$1,317
Earnings Per Share $2.07 $3.54 $3.52 $2.32
EPS Growth n/a 71.01% -0.56% -34.09%
Diluted Shares (MM) 1,188 1,187 1,186 1,116
Free Cash Flow (MM) $3,857 $4,988 $5,432 $5,107
Capital Expenditures (MM) -$704 -$866 -$908 -$706
Net Current Assets (MM) $4,091 $679 -$1,502 -$926
Current Ratio 1.43 1.33 1.22 1.28
Long Term Debt (MM) $4,965 $8,939 $8,049 $10,417
Net Debt / EBITDA n/a n/a 0.7 n/a

PayPal has growing revenues and a flat capital expenditure trend and strong margins with a stable trend. Additionally, the company's financial statements display a steady stream of strong cash flows and low leverage. However, the firm has EPS growth achieved by reducing the number of outstanding shares. Finally, we note that PayPal has just enough current assets to cover current liabilities.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.