To say PayPal (NASDAQ: PYPL) is on a rocket would be an understatement. The recent introduction of cryptocurrency and buy now pay later positions PayPal at the forefront of the payment revolution. Not to mention, the rise in online business is sending PayPal merchant fee revenue through the roof. However, the bears are shaking their heads at the PayPal bulls. This article looks to explain the PayPal stock forecast from the bullish and bearish perspective.
Table of contents
- The bullish argument
- The bearish argument
PayPal stock forecast – the bullish argument
Analysts and price forecasts
Analysts and their price targets are, to a large extent, bullish on PayPal going forward. Among the 44 analysts, the consensus is bullish as 34 analysts hold a buy rating while only 1 suggests selling. Also, of the 44 analysts, 39 offer a 12 price forecast of $290 (high), $220 (median), and $200 (low). Considering the current price is $213.07, a one-year investment would at worst produce a 6.1% loss, and at best provide a 36% return. The attractive upside with little downside adds to the bullish argument (opinion not advice). Moreover, Wallet Investors’ one-year forecast for PayPal is $274. If true would translate to a 28.6% return on investment (ROI).
PayPal’s future catalysts will likely revolve around new currencies and business models joining the economy. The decision to allow users to buy, hold, and sell cryptocurrency today will not fade as a catalyst. The initial adoption of cryptocurrency includes Bitcoin, Etherium, Bitcoin Cash, and Litecoin. The insurgence of new cryptocurrencies will see PayPal’s digital wallet offering expand. Thus, today’s announcement lays the groundwork for future cryptocurrency-PayPal catalysts.
Moreover, PayPal’s recent decision to join the buy now pay later movement with Pay-in-4 will see more retail, and e-commerce stores partner with PayPal. Consequently, future revenues should spike, which will create strong earnings catalysts for PayPal investors.
At large PayPal is showing financial strength in the areas of earnings growth, widening profit margins, and growing revenues.
The explosion of e-commerce during the pandemic saw PayPal’s merchant fees grow exponentially. Hence revenues sit at an all-time high of $19.218 billion. Analysts see the rush to e-commerce as an ever-growing trend, which explains the 35% growth forecast in PayPal’s 2021 revenue. Not to mention the recent news around PayPal accepting cryptocurrency should add to the revenue rocket.
PayPal did take a hit in earnings during 2020, but their June financials indicate profits are back, and better than pre-2020. The growth in earnings is an extended benefit of extreme merchant fee growth. However, it seems strong profitability should be a thing of the future for PayPal (opinion not advice). Especially as analysts project earnings and EPS to grow to$3.720 billion, $2.470 in 2021. If PayPal meets these estimates they would post an impressive 20% and 12% growth in earnings and EPS, respectively.
PayPal stock forecast – the bearish argument
Despite the positive financials above, PayPal does hold some areas of concern. Especially in regards to debt levels. PayPal’s current debt totals $8.394 billion (June 2020), which is 235% higher from last year. Moreover, PayPal’s D/E ratio is 0.5:1. At face value the D/E is good. However, when comparing it to the 2019 D/E ratio of 0.15:1, investors can see that ratio is worsening. Rising debt levels and an unpleasing D/E is never a good sign. However, the real question is, can PayPal sustain its leverage with cash? PayPal holds $13 billion in cash and short term investments and $3.6 billion in receivables. Consequently, the $16.6 billion in cash means PayPal can cover its debt of $8.9 billion for now. While the debt is manageable fundamental investors should not ignore the growing debt.
Summary of the PayPal stock forecast
Before I begin, I remind our viewers that this is not financial advice. Instead, the information above is an investment commentary from extensive research.
Overall, PayPal is in a strong position for a bullish 2021. The introduction of PayPal buy now pay later, and cryptocurrency should create more catalysts in the future and encourage strong revenue and earnings growth. PayPal does hold concern in the area of debt. However, adequate cash levels allow PayPal to sustain its current leverage structure. Also, PayPal is now immune to the virus, at least from a financial standpoint. Thus, the forecasts for 2021 is largely bullish.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Senior Manager, Patrick McLoughlin