Second Chance to Own PYPL Stock?
PayPal Holdings Inc (NASDAQ:PYPL) stock is up 8.8% year-to-date and is outperforming the NASDAQ index, which is up only 0.05%. This name should be familiar for anyone who has purchased or sold a product on eBay for a better part of the new millennium. PayPal is a technology platform that allows for digital and mobile online payments.
PayPal originally had its initial public offering (IPO) in 2002. It managed to generate $61.0 million in proceeds. Shortly after its IPO, the company was acquired by eBay Inc (NASDAQ:EBAY) for $1.5 billion. Investors who were lucky enough to own shares experienced windfall profits.
The good news for investors interested now is that on July 18, 2015, led by shareholder activism, eBay spun off PYPL stock. Thanks to this spin-off, investors now have a second chance to consider getting in on PYPL stock.
If you’re an investor interested in PayPal stock, consider the following three factors that are bullish for PYPL stock:
1. Strong Financial Results
PayPal reported strong first-quarter financial numbers. Its bottom line saw an increase of 30% from its year-ago level, while its top line saw an increase of 19%. Gains on both the company’s top and bottom lines can only be attributed to growth.
The growth was due to an increase in the company’s customer base, as 4.5 million new active costumers were added. Transactions processed saw an increase of 26% from the year-ago level. Growth is expected to continue and management has reiterated its guidance for fiscal 2016.
The company is firing on all cylinders and the financials back this bullish position on PYPL stock.
2. Low Public Participation & Float
Shares of PYPL stock have only been trading for a year. My argument is based on the fact that the general public has not had enough time to completely saturate itself in the name. There is usually slow, progressive movement in a stock until the general population identifies an investment and is fully invested in it. Many investors construct a portfolio and park it away for some time on the horizon. It is not until the media starts talking about a stock’s performance and its gains that retail investors begin to participate. By then, share prices have appreciated materially.
Institutional ownership in PYPL stock currently sits at a lofty level of 79.87%. (Source: “Paypal Holdings Inc., Institutional Ownership,” NASDAQ, last accessed July 19, 2016.) Institutions usually hold their picks for a specified timeframe; the institutional money manager has done his due diligence and has a price objective set for each investment. I call these institutions “firm hands.”
These firm hands have cool heads and are not swayed by minute market movements. So, if we assume these firm hands hold 80% of the float, then it only leaves 20% of shares available to retail investors.
If strong buying pressure emerges, PYPL stock could move higher with little resistance from selling pressure.
3. Bullish PYPL Stock Chart
PYPL stock is setting up a large cup-and-handle pattern on the chart and it is almost complete.
Chart courtesy of www.StockCharts.com
A close above the resistance level at $42.00 would confirm a breakout. The initial target projected by this pattern is $52.00—a $10.00 upside from the stock’s resistance level.
On many occasions, I have seen similar patterns play out. The reaction is intensified when shares have only been trading for a short duration. The upside breakout above resistance acts like a vacuum; shares get sucked to the upside and enter into a new trading range.
The Bottom Line on PYPL Stock
PayPal has been a part of many of our lives for the better part of the new millennium. Its promises of security and brand recognition brought comfort to online consumers and merchants, resulting in years of online shopping growth.
PYPL stock’s technicals and fundamentals are all aligning in a bullish manner now. It is not every day that investors get a second chance, making this an opportunity worth, at the very least, a closer look.