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PayPal's stock price was once soaring at over $300 a share and has now plummeted by a jaw-dropping 80%. It's trading at just $55 a share.
Is this the end of the road for PayPal, or could it be a golden investment opportunity in disguise?
There is actually a debate going on Wall Street. Some say PayPal is a financial technology dinosaur, losing its market leadership, Others believe it's a sleeping giant waiting to rise from the ashes. The million-dollar question: Who's got it right?
Today, I answer that million-dollar question.
Let's talk about that!
I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
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Every now and then, Wall Street calls a company the new IBM. By that, they mean a market leader that has lost its touch, fallen behind competitors, and there no hope of recovery for the company and its stock price.
For example, In 2019, most of Wall Street called Apple the new IBM as the company's stock price crashed from $58 per share in August 2018 to $38 per share in December of the same year, going down more than 30% in less than a quarter. Apple survived and thrived to $175 per share now, a 360% return in 5 years.
What made Apple succeed, and do we see similarities between Apple of 2019 and PayPal's of 2023?
Three Things That Worry Investors About PYPL
Are these valid concerns? Purely and mathematically, they are right. Slow growth, competition, and margin concerns.
But investing is all about the context behind the numbers. Here's the context:
PayPal's Fundamental Analysis
Now, we have the context behind what concerns PayPal's investors, let’s recap PayPal's fundamentals quickly:
Is PayPal A Buy Now?
Buffett says "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
We know we can buy PayPal at a great price. But is PayPal, a wonderful company or just an average digital payment provider hanging in the balance?
What’s the definition of a wonderful company? A monopoly or a company with such a strong competitive moat that cannot be bothered by the competition, has pricing power, and is run by a solid management team.
That definition is simple to understand but not always obvious. In the case of Apple of 2019, when investors were calling it the new IBM, it was its strong customer base who loved their Apple devices that gave it a competitive most. These devices were so entrenched in the customer’s day-to-day lives that Apple could upsell its services and other devices and grow.
To me, PayPal has a similar moat. Many businesses all around the world have PayPal as an integrated part of their payment. The company has 42% market share of the global digital payment volume. With 400M active accounts in more than 200 countries, PayPal has a solid customer base to upsell new products and services.
I own shares of PayPal, and I will add a bit more to it. The risk is that I overestimate the company’s competitive moat. To mitigate that risk, I may spread out my investment and wait to hear the next quarterly earnings, especially because I want to hear from PayPal’s new CEO too.
This episode goes well with a 6-step Fundamental analysis guide that I published recently. If you want to learn or brush up your skills in how to do Fundamental analysis that's a good post to read right after this.
I’ll see you next time!