PayPal has lost the vast majority of its market value over the past three years. However, it continues to operate a solid payments business with nearly half a billion active users each month — yet it’s seemingly overlooked by many investors. I think its recent strength and performance warrant a second look, especially when its growth metrics and margins look solid — and the risk-reward balance is favorable to add long exposure. PYPL has declined 80% over the past three years, but recently it has formed a bottom with a series of higher highs and high lows over the past six months. If we zoom in, we see it has the potential to break above its $68 resistance level, which would target the $73 gap fill level in the short run. Over a longer period, a breakout above $68 could target the low $100’s as an extended target to the upside. If we were to dive into the business, we see a payments company that focuses on delivering growth and improving margins. Having averaged 16% earnings per share growth over the past few years and expecting 13% over the next three, PYPL is downright cheap at only 12x forward earnings. That’s especially true given operating margins that exceed 16% and little debt on its balance sheet. If PYPL traded at its industry and historical average of around 21x forward earnings, it would imply a stock price of $106 — just above our technical upside target. The trade With options on the inexpensive side, I think the best way to structure this trade is with a simple call option. I’m going out to the June expiration and buying a $65 Call for $4.25 Debit. This would risk $425 per contract if PYPL is below $65 at expiration, while providing me with unlimited upside exposure. DISCLOSURES: None THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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