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Breakout Watch: This 2015 IPO Is Testing A New Buy Zone

Studying market data including diagrams

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When looking for the best stocks to buy and watch , start with top-rated names that are leaders within their industry group. Mobile payment pioneer PayPal ( PYPL ) currently fits that bill.

[ibd-display-video id=2368044 width=50 float=left autostart=true] PayPal, along with Square ( SQ ), is one of two stocks in the credit card and payment processing industry group with the highest possible 99 Composite Rating. Fleetcor Technologies ( FLT ) and Mastercard ( MC ) are tied for the No. 2 spot among their peers with a 98 rating.

The group ranks No. 44 out of the 197 groups IBD tracks.

Mastercard is trading at the upper end of a new buy zone after clearing a 154.75 buy point on Jan. 4, while Fleetcor is extended from its November breakout.

Square was featured in the Aug. 25 IBD Stock Analysis , a few weeks before it broke out to launch a 76% gain in a little over two months. The maker of point-of-sale software and hardware has since pulled back, but is now trying to build the right side of a later-stage base.

Square kicked off the new year by retaking its 10-week moving average, but the relative strength line is still well below new high ground. On Tuesday, it recouped earlier losses to close in positive territory.

Meanwhile, when this story first published on Monday, IBD 50 member PayPal was trading just below a 79.49 entry in a second-stage flat base. After getting a price-target hike from a previously skeptical analyst before Tuesday's opening bell, from 67 to 88, the 2015 IPO popped above the buy point, but failed to close above it.

Growing Payment Volume

In Q3, PayPal's earnings growth rose from 28% to 31%, marking a fifth straight quarter of acceleration. Revenue gains have moved higher over the last two reports, including an increase from 18% to 21% in the third quarter.

PayPal is expected to report Q4 numbers at the end of this month, with analysts expecting a 23% rise in earnings for the fourth quarter and a 25% gain for all of 2017.

As of Sept. 30, PayPal had 218 million active customer accounts and 17 million merchant accounts. The San Jose, CA-based company processed $114 billion in total payment volume, up 30% year over year.

Approximately 35% of payment volume came through a mobile device, driving a 54% increase in mobile payments over the same period in 2016.

In addition to its namesake platform, PayPal also owns Venmo, a payment app that is popular among college students and other millennials and makes it easy to send money to friends and make purchases.

In Q3, Venmo processed approximately $9 billion (included in PayPal's total), a year-over-year gain of 93%.

Processing New Breakout?

PayPal came out of the gate strong this year, bouncing off its 50-day line to build the right side of its new base.

On Tuesday, PayPal briefly jumped into the buy zone, then spent the rest of the day testing the entry price before closing below it. The potential buy zone extends to 83.46.

A 1.1 up/down volume ratio, B Accumulation/Distribution Rating and eight quarters of rising fund ownership indicate solid institutional demand for the stock.

PayPal's relative strength line has been somewhat lagging, so look for it to get closer to new high ground.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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