Shareholders in PayPal (PYPL -0.03%) can finally breathe easy again. The fintech has a new leader, a new direction, and a newly climbing stock.
But as the company pulls itself together, is it worth it for new investors to take a chance on PayPal? Or are its glory days over? Let's check it out.
Buy: PayPal has incredible assets
PayPal is the dominant digital payments company servicing both sides of the shopping equation, with a large array of individual services as well as a competitive merchants' business. Although it's been pressured by new competition, no new company has been able to take over its top position in the industry.
Under new Chief Executive Officer Alex Chriss, the company has been making changes to clarify its focus and create an improved experience for users.
It's still growing at healthy rates, and that has remained fairly constant even as the stock dropped. Revenue increased 9% year over year in the second quarter, and total payment volume (TPV) was up 11%. It processed $1.6 trillion in TPV during the trailing 12 months.
PayPal has 429 million active users, and transaction rates continue to rise at robust levels. It also has tailwinds in a growing e-commerce market that is valued at $6 trillion, and that could get a boost this week from interest rate cuts.
Profitability, which had been a major issue for some time, is also improving. The company is generating its highest growth through Braintree, its unbranded online checkout business. Operating margin expanded by 2.3 percentage points in the second quarter to 18.5%, and adjusted earnings per share (EPS) rose 36% to $1.19.
Sell: There are younger stocks with greater potential
PayPal might still have a great name and turnaround potential, but younger companies have been cropping up with more opportunities and more-agile systems. PayPal just announced an expansion of its partnership with ecommerce platform company Shopify, but although they work together, they compete in certain areas, like merchant solutions. There are many exciting and well-established companies finding the gaps in PayPal's platform, like Block, which has popular merchant and digital payment services.
Even some entrenched fintech companies like Visa look like better buys for their consistency and reliability as well as dividend payments.
When there are more-reliable options or stocks with more growth potential, some investors don't see the reason to stick with PayPal and its possible turnaround.
Hold: Don't do anything until things are clearer
There's risk in cases like this. Although it looks like the situation is improving and there is something to be excited about, it's not yet clear that PayPal can pull off a turnaround.
If you already own PayPal stock, it doesn't look like you should sell immediately before it falls -- that already happened. If you bought it a while ago, it could still bounce back. There are many amazing stocks that have lost a large percentage of their value before climbing to new heights. Even Nvidia lost half of its value in 2022 before crushing the market this year. Staying the course is an important part of long-term investing.
Of course, your investing thesis can change for any stock as the company changes, and you don't have to make back your money the way you lost it. But because PayPal could still make a huge comeback, and its trajectory looks good so far, you might want to wait to see what happens here.
What should you do?
There are legitimate reasons to go with any of the above moves. It mostly boils down to what kind of investor you are or what you're looking for right now. Growth investors might look elsewhere, while investors focused on the set-and-forget investing approach could hold. Value investors might be interested in taking a position at the low price.
I would recommend holding right now and seeing how things progress. But if you have some risk tolerance and want to get a great deal, there's reason to be confident.
