PayPal Holdings Inc (PYPL, Financial) recently experienced a daily loss of 2.65%, yet it has posted a gain of 4.96% over the past three months. With an Earnings Per Share (EPS) of $3.35, investors are keen to understand whether the stock is significantly undervalued. This article aims to provide an in-depth valuation analysis of PayPal Holdings, exploring whether the current market price reflects the true value of the company. Read on to uncover the insights that could inform your investment decisions.
Company Introduction
PayPal Holdings Inc (PYPL, Financial), spun off from eBay in 2015, operates a robust electronic payment system for merchants and consumers, focusing on online transactions. As of the end of 2022, the company boasted 435 million active accounts, including the ownership of Venmo, a popular person-to-person payment platform. With a current stock price of $61.41, PayPal Holdings has a market cap of $66.20 billion, raising the question of how this compares to the company's intrinsic value, as estimated by the GF Value. This article delves into the financials and market position of PayPal Holdings to evaluate its true worth.
Summarize GF Value
The GF Value is a proprietary measure that estimates the fair value of a stock by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, as well as future business performance estimates. When a stock's price is significantly below the GF Value Line, it suggests an undervalued status with potential for higher future returns. For PayPal Holdings, the GF Value is set at $114.03, indicating that at the current price of $61.41 per share, the stock is significantly undervalued.
Given this significant undervaluation, investors could anticipate much higher long-term returns from PayPal Holdings stock compared to its business growth.
Financial Strength
The financial strength of a company is vital to avoid potential capital loss. PayPal Holdings' cash-to-debt ratio stands at 1.09, ranking higher than 70.76% of peers in the Credit Services industry. This ratio has earned the company a financial strength rating of 6 out of 10 from GuruFocus, indicating a fair balance sheet.
Profitability and Growth
PayPal Holdings has been profitable for the past decade, a testament to its solid business model. The company's operating margin of 16.47% may not be the highest in the Credit Services industry, but its profitability rank of 10 out of 10 reflects its strong performance. Additionally, PayPal Holdings has demonstrated impressive growth, with an average annual revenue increase of 16.7%, outpacing 72.95% of its industry counterparts. However, its 3-year average EBITDA growth rate of 8.3% suggests there is room for improvement.
ROIC vs WACC
A company's value creation can also be assessed by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). PayPal Holdings' ROIC of 16.96% exceeds its WACC of 11.68%, indicating that the company is effectively generating cash flow relative to the capital invested.
Conclusion
In conclusion, PayPal Holdings (PYPL, Financial) is currently positioned as significantly undervalued. The company maintains a fair financial condition with robust profitability. Although its growth is somewhat mixed, the potential for future returns appears promising. For a deeper dive into PayPal Holdings' financials, interested investors can explore the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
