The major indices ticked higher this morning, adding to yesterday’s gains after the latest consumer price index reading showed inflation rose less than expected in June. Market participants are closely monitoring inflation data for clues about the Federal Reserve’s rate hiking path.
A significant pullback has created an extremely desirable entry point for the stock we’re recommending today.
PayPal Holdings Inc. (PYPL)
Unlike many fintech companies, digital payments giant Paypal is incredibly profitable. Yet its stock is down more than 80% from its July 2021 ATH, and it trades at a reasonable 29 times price to earnings, well below its historical average P/E of 50.
With e-commerce activity on the decline since the thick of the pandemic, PayPal is seeing slower growth. Unrelenting high levels of inflation have put a dent in discretionary spending, which has hurt PayPal, but thanks to its firm financial footing, the company has plenty of room to handle a possible prolonged economic downturn.
Despite estimates calling for roughly 20% earnings growth this year, PayPal stock trades below 16 times free cash flow and about 14 times operating cash flow, indicating that investors may be underestimating its recovery potential. Among 48 polled analysts, 33 say to Buy PYPL, and 15 call it a Hold. There are no Sell ratings for the stock. A median 12-month price target of $86 represents a 22% increase from today’s price.
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