(Bloomberg) — For the majority of analysts at PayPal Holdings Inc., the only way is up. The problem is that the stock keeps falling.
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About two-thirds of the more than 50 Wall Street firms covering the digital payments company have a buy or equivalent rating on the stock, according to data compiled by Bloomberg. And no one has a sellout, the data shows, something that can’t be said of Apple Inc., Microsoft Corp., or even the latest market darling Nvidia Corp.
Analysts were also bullish in mid-2021, when pandemic-fueled revenue growth pushed the stock to record highs. No one predicted the roughly 80% plunge that sent PayPal to its lowest level in six years late last month. This time, the market is more cautious.
Tejas Dessai, analyst at Global X ETFs, said investors are “widely skeptical of fintech names” given their sensitivity to the consumer economy in an era of high interest rates and inflation. “What makes it harder for PayPal is slow growth and continued margin pressures,” he said. While the stock is 5.1% owned in the Global X Fintech ETF, the fund has reduced its position since October last year, according to data compiled by Bloomberg.
The San Jose, Calif.-based company lost nearly $300 billion in market value as revenue growth that was accelerated during the Covid-19 pandemic slowed significantly. The final issue that worries investors is low profit margins.
Still, PayPal has one key appeal – it’s very cheap. At 12 times expected earnings, the stock is trading at a record valuation and is cheaper than 90% of Nasdaq 100 companies, according to data compiled by Bloomberg.
For some analysts, being cheap is not a good enough reason to buy.
“Given changing interest dynamics combined with slowing growth, we don’t see PayPal returning to the price-to-earnings ratio peaks seen during the pandemic,” said Edward Jones analyst Logan Purk. He was one of three long-time bulls to downgrade the stock after PayPal’s full-year margin guidance disappointment.
“PayPal continues to focus on its largest core accounts, which should help drive solid volume growth,” Purk said. “However, this business tends to be lower margin. We wonder how long PayPal can offset margin pressures with its disciplined cost controls.
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–With help from Tom Contiliano and Rheaa Rao.
(Updates the Technical Chart of the Day section.)
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