PayPal Stock Down 17% Today – Time to Buy PYPL Stock?

The price of PayPal stock is sinking during this morning’s pre-market stock trading action after the company reported its financial results covering the fourth quarter of the 2021 fiscal year as earnings missed analysts’ forecasts and prompted concerns about the firm’s ability to beat its pandemic era comparables.

For the three months ended on 31 December, PayPal reported total revenues of $6.9 billion resulting in a 13% increase compared to the same period a year ago. For the full 2021 fiscal year, the firm’s top-line results grew 17% compared to the previous year. This figure failed to dazzle the market again as it was in line with analysts’ expectations for the period.

Total payment volumes for the quarter rose 23% on an FX-neutral basis at $339.5 billion while 9.8 million new accounts were added to the platform resulting in a 13% year-on-year jump compared to the previous year.

However, this figure included 3.2 million accounts added amid the acquisition of Paidy. If those accounts are excluded, year-on-year growth would decline to 12%, making this the sixth consecutive quarter of slower user growth. This could be one of the reasons why PayPal stock is dropping this morning.

Meanwhile, non-GAAP quarterly operating margins declined 291 basis points at 21.8% while adjusted net income stood at $1.32 billion resulting in earnings per share of $1.11. This represents a 49% decline compared to the same period a year ago. Analysts had estimated earnings of $1.12 for the period. Free cash flows increased to $1.55 billion resulting in a 38% year-on-year jump.

For the 2022 fiscal year, PayPal now expects to report a 15% to 17% jump in its revenues along with non-GAAP EPS ranging between $4.6 and $4.75 per share. This range was well below the market’s consensus EPS forecast of $5.26 for the period.

Moreover, the firm estimated that it will add 20 million new accounts during 2022 resulting in a 4.6% increase compared to 2021. This indicates that the weaker growth that the company has been experiencing in this particular metric will continue this year.

Overall, this was a disappointing report from PayPal and the market is reacting accordingly. What could be expected from this fintech stock in light of this development? In this article, I’ll be assessing the price action and fundamentals of PayPal stock to outline plausible scenarios for the future.

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PayPal Stock – Technical Analysis

This morning’s sharp pre-market decline is keeping PayPal stock confined within the descending price channel highlighted in the chart as the company continues to struggle to live up to the tough comparables of the pandemic.

Nearly 400,000 shares have exchanged hands in the pre-market session and chances are that the live session will see a spike in trading volumes as well as sentiment toward PayPal keeps deteriorating.

If this downtick spills over to the opening as-is, PayPal will now be trading 41% below its 200-day simple moving average while the $172.5 former support has now turned into resistance.

Moving forward, it seems plausible that market participants will aim to fill the open gap from April 2020, back when the pandemic was lifting the firm’s top-line performance as users relied on PayPal to make online transactions while confined within their homes.

This results in a pronounced 27% downside risk based on yesterday’s closing price of $175.8 per share.

Momentum oscillators favor this view as the Relative Strength Index (RSI) has failed to climb above the 50 level multiple times in the past few weeks while the MACD remains on negative territory.

PayPal Stock – Fundamental Analysis

PayPal’s slower forecasted user growth for 2022 is perhaps the most important variable to keep an eye on at the moment as the firm’s post-pandemic performance seems to have reached a peak.

However, revenue growth does not seem to be decelerating and that is positive news for long-term investors.

Based on the market’s forecasted earnings for 2022 and today’s pre-market price, PayPal would be trading at a forward P/E ratio of 28. The last time the stock traded at such low multiples was in 2020 when the markets were crashing after the World Health Organization (WHO) officially classified the COVID-19 virus as a pandemic.

If the firm’s earnings continue to grow at a rate between 15% to 20% as the market expects, this results in a forward price-to-earnings-to-growth ratio of around 1.5x and 2x.

PayPal’s strong business model, brand, and user base along with its robust balance sheet and prospects make the company a potential buy at these levels for long-term investors as the fundamentals of the business remain intact even though the firm may keep struggling to live up to the tough comparables from the pandemic.

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