It hasn't been a great morning session for PayPal investors, who have watched their shares sink by -2.3% to a price of $79.78. 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.
a Very Low P/E Ratio but Its Shares Are Expensive:
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 22.6 and an average price to book (P/B) ratio of 3.19. In contrast, PayPal has a trailing 12 month P/E ratio of 19.4 and a P/B ratio of 3.99.
PayPal's PEG ratio is 1.53, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Strong Revenue Growth and an Average Current Ratio:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $15,451 | $17,772 | $21,454 | $25,371 | $27,518 | $29,771 |
| Operating Margins | 14% | 15% | 15% | 17% | 14% | 17% |
| Net Margins | 13% | 14% | 20% | 16% | 9% | 14% |
| Net Income (M) | $2,057 | $2,459 | $4,202 | $4,169 | $2,419 | $4,246 |
| Net Interest Expense (M) | $77 | $115 | $209 | $232 | $304 | $347 |
| Depreciation & Amort. (M) | $776 | $912 | $1,189 | $1,265 | $1,317 | $1,072 |
| Diluted Shares (M) | 1,196 | 1,187 | 1,191 | 1,186 | 1,158 | 1,107 |
| Earnings Per Share | $1.71 | $2.07 | $3.54 | $3.52 | $2.09 | $3.84 |
| EPS Growth | n/a | 21.05% | 71.01% | -0.56% | -40.63% | 83.73% |
| Avg. Price | $82.6 | $105.07 | $161.52 | $254.17 | $108.51 | $79.12 |
| P/E Ratio | 47.47 | 50.27 | 45.12 | 71.6 | 51.67 | 20.55 |
| Free Cash Flow (M) | $4,657 | $3,367 | $5,353 | $4,889 | $5,107 | $4,220 |
| CAPEX (M) | $823 | $704 | $866 | $908 | $706 | $623 |
| EV / EBITDA | 31.5 | 33.29 | 43.23 | 54.37 | 25.04 | 14.77 |
| Total Debt (M) | $1,998 | $4,965 | $8,939 | $8,049 | $10,417 | $9,676 |
| Net Debt / EBITDA | -1.88 | -0.66 | 0.93 | 0.52 | 0.51 | 0.1 |
| Current Ratio | 1.27 | 1.43 | 1.33 | 1.22 | 1.28 | 1.29 |
PayPal benefits from rapidly growing revenues and decreasing reinvestment in the business, decent operating margins with a stable trend, and a strong EPS growth trend. The company's financial statements show generally positive cash flows and healthy leverage levels. Furthermore, PayPal has just enough current assets to cover current liabilities, as shown by its current ratio of 1.29.
