Down 40%, This Top Growth Stock Trades at a Bargain Basement …

PayPal (PYPL 2.08%) has gotten pummeled over the past year. Shares of the payments giant have plunged around 40% because of slowing growth and higher interest rates. Despite those issues, the company expects to continue growing this year.

Shares now trade at a very cheap valuation. Here’s a closer look into the financial technology company’s value proposition.

Growth on sale

PayPal has been growing rapidly over the last several years:

A slide showing the growth of PayPal's key performance metrics over the last several yeras.

Image source: PayPal Investor Relations Presentation. However, the company hit a speed bump last year.

Revenue rose only 8% because of foreign exchange headwinds and slowing active account and total payments volume growth of 2% and 9%, respectively. Meanwhile, non-GAAP earnings per share fell 10%, primarily because of a big benefit from a credit loss reserve release in the prior year. The company is investing to reinvigorate top-line growth, including expanding its Buy Now Pay Later offering, PayPal Rewards, and Venmo.

Meanwhile, cost savings and other initiatives should reaccelerate earnings growth. The company expects its non-GAAP earnings to jump 18% this year to around £4.87 per share. With the stock recently around £74 a share following its 40% plunge, it trades at about 15 times forward earnings.

That’s cheap compared to the broader market. The S&P 500 Index currently fetches 17.5 times forward earnings, while the Nasdaq Composite Index trades at 24 times its forward earnings.

A cash flow machine

PayPal also generates an enormous amount of free cash flow. Last year, the payments behemoth produced £5.1 billion of free cash flow, converting £0.19 of every dollar of revenue into free cash.

Despite all the economic and tax headwinds, PayPal expects to produce around £5 billion of free cash this year. Given its steep stock slide, PayPal currently has a market capitalization of £83.4 billion. As such, it trades at about 16.7 times free cash flow or a 6% free cash flow yield.

That’s dirt cheap compared to the broader market. The S&P 500 Index trades at about 20 times free cash flow (a 5% free cash flow yield), while the Nasdaq Composite Index sells for 25 times free cash flow (a 4% free cash flow yield).  PayPal produces more cash than it needs to grow the business.

It’s using the bulk of the free cash flow to repurchase its dirt-cheap stock. The payments giant repurchased £4.2 billion of its shares last year, using about 82% of its free cash flow. PayPal’s share repurchases stand out in the tech sector.

Many buybacks barely offset the dilution from stock-based compensation. However, PayPal’s repurchases reduced its outstanding shares by about 2.5% last year. Meanwhile, they’re down 7.5% from the high since it became an independent public company in 2015.

The company plans to use about 75% of its 2023 free cash flow on share repurchases, which should continue reducing its outstanding shares, especially given the lower share price. 

An industry leader at a bargain price

While PayPal is facing some headwinds, the company is making the necessary investments and changes to recharge its growth engine. Meanwhile, with shares down sharply on those growth concerns, the company trades at a bargain-basement valuation these days. Now looks like a great time to go bargain shopping and pick up shares of the payments leader while they’re on sale.

  Matthew DiLallo has positions in PayPal and has the following options: short June 2023 £67.50 puts on PayPal. The Motley Fool has positions in and recommends PayPal.

The Motley Fool has a disclosure policy.

Tags:

bt-business-direct listed on couponmatrix.ukburton listed on couponmatrix.ukdaniel-footwear listed on couponmatrix.ukderma-care-direct listed on couponmatrix.ukperfume-direct listed on couponmatrix.uktower-of-london listed on couponmatrix.uk
bt-business-direct listed on couponmatrix.ukBT Business Direct is a top provider of business technology and services in the United Kingdom. It offers flexible packages and discounts on a range of products and services including broadband, phone lines, mobile plans, and more. Visit the store today and use a BT Business Direct promo code to save on your next package, so your business gets the connection and bandwidth it deserves without breaking the bank. At Groupon, we work hard to find the best cost-cutting promotions discounts for BT Business Direct. We know how important it is to save money on business connections, so we regularly update our coupons and deals page with the latest offers. Be sure to check back often for the best savings on BT Business Direct products and services and as always – thanks for choosing Groupon! Looking for a great deal on BT Business Broadband? Check out our offers to save big not just on top-performing software like Microsoft office but the hardware that runs it too! With a BT Business Broadband discount code, you can nab everything from the latest gadgets and mobile phones to printers, routes, laptops and desktop computer. So why wait? Get the best broadband and computing must-haves for your business today with BT Business Direct.
burton listed on couponmatrix.ukEstablished back in 1903, by Montague Burton, Burton suited British soldiers at the end of the First World War and then suited the 1966 winning England football team - a history to be proud of! Tap into this great retailer for less with a Burton discount code and access sharp suits, clean denim, shoes and smart shirts without breaking the bank. The Burton man is interested in fashion but not a trendsetter!
daniel-footwear listed on couponmatrix.ukDaniel Footwear is the go-to place for all your designer shoes, bags and accessories needs; stocked full of designers such as Vivienne Westwood, DKNY, Ash, Ugg, Michael Kors, Tory Burch and so many more. Thanks to your Daniel Footwear discount code, the days of standing longingly at the shoes of your dreams through the shop window can be behind you as you enjoy your exclusive savings. With Daniel Footwear, you can finally realise your designer dreams and live the red-carpet life you always knew you deserved.
derma-care-direct listed on couponmatrix.ukMake blemishes, dark circles and dryness a thing of the past with Derma Care Direct, experts in finding every solution for your skin. From acne to anti-ageing cream, give your skin the treatment it deserves at a below-budget price by using the latest Derma Care Direct discount code from Groupon. With expert advice, specialised products and remedies for all kinds of skin-related ailments at its fingertips, we dare you to find a skincare solution that Derma Care Direct doesn’t provide. Unsure on the best product to treat your tissue? Take the Derma Care Direct skin test to narrow down a selection of the best-suited skincare solutions within minutes, then you’ll have the lion’s share of options and prices to pick between. Select by whichever skincare brand you favour, then you can enter the details of the treatment you require, leaving you with the perfected product from your preferred brand. Tackle tiredness, creases and wrinkles with the assistance of Derma Care Direct’s phenomenal selection of eye care. With an inventory of creams, gels and serums dedicated to producing refreshed, youthful skin, be sure to make a saving on your favourites with the newest Derma Care Direct voucher code. Whatever obstacles your eyes endure on a daily basis, know that you there’s a way to give them that extra boost at a bargain price with Derma Care Direct.
perfume-direct listed on couponmatrix.ukGreat smells aren’t hard to come by, but finding one at the right price can be! When we’re in need of the perfect fragrance from our favourite designers, we look to Perfume Direct. Stocking deliciously scented men’s aftershaves and women’s perfumes from top brands, ensure that you have a Perfume Direct discount code to hand to save on seasonal scents and bestsellers today. With A-lister designer names like Calvin Klein, DKNY and many more available - you’ll find your fragrance in a flash.
tower-of-london listed on couponmatrix.ukA fortress, palace and prison all in one, the Tower of London is a fascinating place to visit and is an ideal stop on a family day out - with a Tower of London discount you’ll be able to access over 1,000 years of history for less! Find out what famous prisoners have spent some time here such as Guy Fawkes and Anne Askew and of course you can’t miss out taking a peek at the infamous Crown Jewels.