The fintech market can be cyclical, with companies benefiting from surges in consumer spending and borrowing during good years and suffering a bit when lean times come along. But the volatility sometimes overshadows the bigger picture within financial technology, which is that the fintech will be worth an estimated $1.5 trillion by 2030.
This massive opportunity isn't lost on some companies. The fintech space is growing and becoming increasingly competitive, but PayPal (PYPL -0.40%) continues to succeed despite the pressure, and could be a long-term winner for investors. Here's why it may be worth putting $1,000 toward the stock right now.
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PayPal is a clear fintech leader
There is no shortage of companies vying for a top spot in the fintech space, but PayPal's early moves continues to benefit the company. Consider that in PayPal's third quarter (which ended Sept. 30), its total payment volume (TPV) -- which is the amount customers spent using its payment platforms -- was a stunning $442 billion, an increase of 9% from the year-ago quarter.
That figure shows just how large PayPayl's payment platforms. Better yet, their popularity continues to grow. The company has 432 million active accounts right now and the number of payment transactions per active account rose 9% in the quarter to more than 61. That means a ton of people are using PayPal and the frequency at which they use PayPal to pay for things is increasing.
One area of growth over the past few years has come from PayPal's popular person-to-person payment app, Venmo. Just five years ago, Venmo had about 52 million users; now, it has an estimated 88 million. With all of its payment platforms, PayPal commands 45% of the global online payment processing market, far outpacing the second-largest player, Stripe, with 17%.
One area management highlighted it wants to see more growth from is in payment checkouts. PayPal CFO, Jamie Miller said on the third-quarter earnings call, "We are particularly focused on small and medium businesses and mobile, both critically important areas for us to improve our positioning."
Investors will like that the company is profitable, with a non-GAAP operating margin of 18.8% in the most recent quarter and earnings of $1.20 per share, a 22% increase from the year-ago quarter. PayPal also has $16.2 billion in cash and cash equivalents and ended the third quarter with $1.4 billion in free cash flow.
This solid financial foundation bolsters PayPal as a leader in fintech, even as smaller rivals try to cut into the company's lead. And with its current growth in active accounts and rising transactions, PayPal is continues to be a formidable company that rivals will have a hard time toppling.
PayPal's stock looks relatively cheap
It's not easy finding stocks that are well-priced these days, but PayPal looks relatively cheap compared to some of its peers. PayPal's shares have a forward price-to-earnings ratio of just 18, far below fellow fintech company SoFi's 77, and lower than the S&P 500's forward P/E ratio of 23.
This gives investors an opportunity to own a slice of a fintech leader at a good price. PayPal will report its fourth-quarter financial results on Feb. 5, so if you want the company's full-year financial picture, you can wait until then before buying shares.
But with PayPal's growing customer base and profitability, this inexpensive stock looks like a good place to put $1,000 right now. Just keep in mind that fintech stocks can be volatile, so remember to have a long-term strategy before buying shares.
