Shares of PayPal Holdings Inc. (NASDAQ: PYPL) have been gaining momentum lately and are now trading at 82% of their 52-week high prices. Following this momentum, analysts at Mizuho Financial saw it fit to boost the stock’s price target up to $90 a share, where they previously saw a $68 valuation. They dare the beaten-down stock to rally by 44% from where it trades today.
While still far from its all-time high price of $310.2 a share, investors could catch PayPal stock on its new revival. Far from blindly following the ‘smart money,’ investors could dig deeper into the company’s fundamentals and trends, increasing its valuation.
More than that, investors can focus on management’s new road to growth through cryptocurrency and new advertising divisions, which don’t necessarily need to happen to bring PayPal back to its former glory days. Getting the most challenging thing out of the way, here’s a snippet of PayPal’s balance sheet.
PayPal: It’s Selling for Scraps
PayPal stock may seem undervalued, but it's far from considered junk. The company’s financials reveal approximately $38 million in customer accounts and $41 million in customer payables. When these amounts are offset, the company's net liability stands at just $3 million.
Because PayPal's free cash flow (FCF) is increasing, it can keep a healthy cash balance on hand, which stood at $9.6 million in the past quarter. So, valuing PayPal based on its balance sheet would give investors an interesting footing.
Net asset value (NAV), defined as the value per share of a stock after all liabilities are accounted for, would be roughly $75 a share. That could be what Mizuho analysts saw when boosting their targets. However, that is something for investors to consider as it is a relatively riskless entry into PayPal's upside.
Speaking of upside, while some may be stuck on the technology sector’s growth story surrounding artificial intelligence and semiconductors, PayPal’s upside comes mainly outside of its growth engine.
PayPal is Making the Right Pivots
PayPal’s management has been buying back stock lately, recently taking out 25 million shares off the open market for a net return of $1.5 billion to investors. But that’s not the only way management returns capital to its investors.
Venmo, owned by PayPal, recently turned on the monetization switch, bringing in a couple of other streams that will help the company deliver higher earnings per share (EPS) this year. The company has also rolled out its PayPal Stablecoin, which is hosted on the Solana blockchain.
A new way to collect fees from customers is here, with the trade-off being faster and more reliable transactions and the excitement of being exposed to the world of centralized cryptocurrencies (keeping customers safe from third-party scams).
Through its new PayPal advanced offers platform, the company plans to enable businesses to better advertise their products and services, all within the same platform on which they collect their payments. This means that for investors, there is yet another way for the bottom line to become more prosperous, and so could the stock price.
Now that PayPal has reached up to 50% market share in the online payment services industry, competitors like Mastercard Inc. (NYSE: MA) could soon be left behind by PayPal’s new string of services, which is away from the traditional methods.
Wall Street is aware of these trends, and investors can notice it all through the past quarter’s price action. Compared to Mastercard and the Financial Select Sector SPDR Fund (NYSEARCA: XLF), PayPal outperformed both in bringing investors the market’s bullish translation.
Smart Money Investment Boost in PayPal
So-called ‘smart money’ has given up to $21.8 billion in investment flows to PayPal stock over the past 12 months, another vote of confidence for Main Street to consider. Among these is Jefferies Financial Group, which opened a position of up to 36,545 shares of PayPal.
Since PayPal trades at a price-to-earnings ratio (P/E) of only 15.4 times today, it offers a steep discount to the business services sector’s 33.1 times P/E valuation.
Recently bullish price action, along with a steep balance sheet and sector discount, could bring investors back on the belief that PayPal could make a comeback on improving financials.
