Despite one analyst downgrade today, shares of PayPal Holdings (NASDAQ: PYPL) were bouncing higher along with the broader market. The stock has lost nearly half of its value year to date after a disappointing outlook for the year ahead.
While Bank of America (BofA) doesn't see any upside for the stock in 2022, it's hard not to resist the tempting value in PayPal right now. Should investors pull the trigger at a forward price-to-earnings (P/E) ratio of 21?
Management expects adjusted earnings per share in 2022 to be flat to up to 3% over 2021. So, even though PayPal trades at its lowest P/E multiple as a publicly traded company, it's possible the stock could continue to underperform this year.
Some analysts have questioned whether competitors like Apple Pay are encroaching on PayPal's turf. Apple Pay is integrated across Apple's devices -- a massive installed base that stood at 1.8 billion at the start of the year. But there are a few numbers from PayPal's recent quarter that suggest it is still a trusted brand for more than 400 million users.
PayPal reported that the number of transactions per account grew 11% over the year-ago quarter. That's a meaningful acceleration over 1% growth in the fourth quarter of 2020.
PayPal also added 49 million active accounts to finish 2021 with 426 million, which reflects an entrenched and trusted brand.
Image source: PayPal Holdings.
Customer account growth will slow in 2022 as management shifts its strategy to driving higher revenue per user rather than adding new users. This seems to be the biggest factor weighing on the stock's performance.
However, PayPal's early outlook calls for revenue and adjusted earnings to grow above 20% entering 2023. The recent sell-off appears to be an overreaction to what could be a temporary slowdown in growth partly caused by management's shift in growth strategy and the transition of eBay to its own payments system.
At these lows, investors could give this fintech leader the benefit of the doubt. But I might wait to see if PayPal actually reaccelerates its growth toward the end of 2022 before making an investment.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Ballard has no position in any of the stocks mentioned. The Motley Fool owns and recommends Apple and PayPal Holdings. The Motley Fool recommends eBay and recommends the following options: long March 2023 $120 calls on Apple, short April 2022 $62.50 calls on eBay, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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