PayPal Is Best of Breed with Digital Payments
The global payment segment has been rapidly expanding over the past few decades, driven by the superlative growth in e-commerce worldwide. The demand for digital payment solutions for companies and consumers will only expand. The best of breed in the digital transaction space is PayPal Holdings Inc (NASDAQ:PYPL), which I’m pretty confident many of you have used to transact funds.
PayPal was the first to firmly establish a foothold in the digital payment space. In the process, it has grown its global user base to around 203 million active accounts in more than 200 markets and 100 currencies.
PYPL stock has outperformed the S&P 500, with an impressive 49% advance this year, including a 34% move over the last three months.
A record high of $59.38 was established on July 20 after the multi-year breakout in April, but there is more to come for patient investors, albeit they would have to watch for some potential overbought selling to surface prior to PYPL stock moving higher than $60.00.
Fundamentals Support the Bullish Story for PayPal Stock
Revenues have increased in each of the past two years from $8.02 billion in 2014 to $9.24 billion in 2015 and $10.84 billion in 2016.
The revenue growth rate jumped to 17.2% in 2016 from 15.21% in 2015. Revenues are set to expand another 17.3% to $12.72 billion in 2017, followed by a 17.4% increase to $14.93 billion in 2018. (Source: “PayPal Holdings, Inc. (PYPL),” Yahoo! Finance, last accessed July 21, 2017)
For such a big company like PayPal, the growth rate is impressive. Better yet, there is a high estimate of $16.49 billion in revenues for 2018.
The earnings side has been equally impressive, especially in 2015, when earnings surged by 193% year-over-year prior to normalizing down to 14.09% in 2016.
Looking ahead to 2017, the earnings growth rate is predicted to rise to 18.06% and as high as 26% if PayPal can achieve its high estimate of $1.89 per diluted share. The growth rate for 2018―based on the consensus of $2.13 per diluted share―is 19.66%, but could be as high as 33.14% based on the high estimate of $2.37 per diluted share. (Source: Ibid.)
In a bullish signal, Wall Street has been increasing the earnings per share (EPS) expectations for PYPL stock over the past 90 days, from $1.72 and $2.04 per diluted share for 2017 and 2018, respectively, to the current $1.78 and $2.13. This scenario of higher EPS estimates is bullish for a stock ,and generally allows for a higher stock price.
Technicals Suggest Opportunities
PayPal stock staged a multi-year breakout at around $44.00 in April 2017 that was accompanied by a bullish upside trading gap.
The breakout in PYPL stock was associated with an upward-sloping 50-day and 200-day moving average holding in a bullish golden cross formation.
While the upward break is positive, PayPal stock is now in uncharted territory.
Chart courtesy of StockCharts.com
While buy-and-hold investors may consider a pullback to the $50.00 to $55.00 a share price support area to buy in, traders might want to jump in at the current price to take immediate advantage of the stock’s breakout.