We came across a bullish thesis on PayPal Holdings, Inc. (NASDAQ:PYPL) on Twitter by Dimitry Nakhla. In this article, we will summarize the bulls’ thesis on PYPL. PayPal Holdings, Inc. (NASDAQ:PYPL)’s share was trading at $85.35 as of Dec 31st. PYPL’s trailing and forward P/E were 20.42 and 17.36 respectively according to Yahoo Finance.
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PayPal (NASDAQ:PYPL) is currently trading at a valuation below its fair value, with a NTM P/E ratio of 18.47x compared to its all-time mean of 29.55x. This presents a strong opportunity for investors, who can expect earnings per share (EPS) to grow by approximately 53% and free cash flow (FCF) per share by 46%. The company’s strong financial position is evident, with a robust balance sheet, $11.92B in cash, and manageable long-term debt of $9.98B. PayPal has also demonstrated strong returns on capital and equity, with consistent improvement over the years. Its return on capital has risen from 12.4% in 2019 to 16.6% in the last twelve months, while return on equity has increased from 15.2% in 2019 to 22.2% in the last twelve months.
Revenue growth has been impressive, with a 14% compound annual growth rate (CAGR) from 2018 to 2023, while normalized EPS has grown at a CAGR of 16.07%. Despite a slight decline in free cash flow, PayPal’s LTM FCF remains strong at $7.05B, reflecting a 150% increase since 2017. The company’s share buybacks have further boosted EPS by 13.1%, reducing shares outstanding by 11.6%.
Looking ahead, analysts expect PayPal to grow EPS at a 6.9% YoY rate in 2025 and 11.1% in 2026. With its P/E ratio at a reasonable level, the stock offers attractive upside potential, especially if it trades at multiples slightly above its historical average. Given the progress management has made and the market’s evolving sentiment, PayPal presents a compelling investment opportunity, though some risks remain.
PayPal Holdings, Inc. (NASDAQ:PYPL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 90 hedge fund portfolios held PYPL at the end of the third quarter which was 87 in the previous quarter. While we acknowledge the risk and potential of PYPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PYPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.