PayPal Holdings, Inc. (PYPL - Get Rating) is a popular technology platform and digital payments company that allows consumers and merchants worldwide to make digital and mobile payments. It offers various payment solutions such as PayPal, PayPal Credit, Venmo, Hyperwallet, and Braintree.

PYPL’s stock has declined 64.2% over the past year and 48.1% year-to-date to close its last trading session at $97.92. However, it is up 37.1% over the past month and 14% over the past five days. It is trading 44.9% higher than its 52-week low of $67.58 and 67% lower than its 52-week high of $296.70.

Here are the factors that could affect PYPL’s performance in the near term:

Recent Initiatives

The company announced a new $15 billion share repurchase authorization. The company also announced that activist investor hedge fund Elliott Management had taken a $2 billion stake in the company, and PYPL is open to working with the fund. The company’s stock surged 9.3% intraday on the announcement.

Bleak Bottom Line

For the fiscal second quarter ended June 30, PYPL’s net revenues increased 9.1% year-over-year to $6.81 billion. However, its non-GAAP net income decreased 20.8% from the prior-year quarter to $1.08 billion. Non-GAAP net income per share declined 19.1% from the same period the prior year to $0.93.

Stretched Valuations

In terms of its forward P/E, PYPL is trading at 62.35x, 175.1% higher than the industry average of 22.66x. The stock’s forward EV/Sales multiple of 4.09 is 38.4% higher than the industry average of 2.96. In terms of its forward Price/Sales, it is trading at 4.06x, 36.3% higher than the industry average of 2.98x.

Bleak Bottom Line Growth Expectations

The consensus EPS estimate of $0.95 for the quarter ending September 2022 indicates a 14.3% year-over-year decrease. Likewise, the consensus EPS estimate of $3.93 for the fiscal year 2022 reflects a decline of 14.6% from the prior year.

POWR Ratings Don’t Indicate Enough Upside

PYPL’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

PYPL has a Momentum grade of C in sync as the stock is trading above its 50-day Moving Average of $78.80 but lower than its 200-Day Moving Average of $132.11.

The stock also has a C grade for Quality. Its trailing-12-month gross profit margin and levered FCF margin of 45.38% and 6.87% are 10.6% and 25% lower than their respective industry averages of 50.76% and 9.16%. However, its trailing-12-month EBITDA margin of 18.93% is 47.7% higher than its industry average of 12.82%.

In the 48-stock Consumer Financial Services industry, it is ranked #39. The industry is rated D.

Click here to see the additional POWR Ratings for PYPL (Growth, Value, Stability, and Sentiment).

View all the top stocks in the Consumer Financial Services industry here.

Bottom Line

PYPL is taking up share repurchase initiatives that might improve shareholder returns. However, its negative bottom-line growth is concerning. Moreover, analysts predict further declines this year. Hence, I think the stock might be avoided now.

How Does PayPal Holdings, Inc. (PYPL) Stack Up Against its Peers?

While PYPL has an overall POWR Rating of D, one might consider looking at its industry peers, EZCORP, Inc. (EZPW - Get Rating) and Regional Management Corp. (RM - Get Rating), which have an overall B (Buy) rating.

PYPL shares were trading at $97.41 per share on Thursday afternoon, down $0.51 (-0.52%). Year-to-date, PYPL has declined -48.35%, versus a -12.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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