PayPal (NASDAQ: PYPL) shares are underperforming right now. Only a few months ago, its share price was above $300. Yesterday, however, the stock ended the day at $205 after investors dumped the stock on the back of the group’s third-quarter 2021 results.
I own PayPal in my portfolio and it’s quite a large position for me. And recently, I’ve been adding to my position. So what’s the best move now? Should I buy more PYPL shares? Or cut my losses and sell?
PayPal’s Q3 results
While the market didn’t like PayPal’s Q3 results (the share price was down 10.5% yesterday), I didn’t think they were that bad, all things considered.
For the quarter, revenue came in at $6.18bn (Wall Street was expecting $6.23bn), up 13% year-on-year, while total payment volume (TPV) was $310bn, up 24% on an FX-neutral basis.
Non-GAAP earnings per share (EPS) for Q3 were $1.11 (the consensus forecast was $1.07), compared to $1.07 in Q3 2020, while free cash flow was $1.29bn, up 20% year-on-year.
During the period, the group added 13.3m net new active accounts, taking its total active accounts to 416m.
Looking ahead, PayPal said it expects revenue and EPS to grow around 18% and 19% respectively for the full 2021 year. It also said it expects to end the year with more than 430m active accounts.
Looking further out, the group said that it expects revenue growth of around 18% next year. That would equate to full-year revenue of around $30bn. Analysts had been expecting $31.6bn.
It’s worth pointing out that PayPal announced in the Q3 results that it’s teaming up with e-commerce powerhouse Amazon to enable US customers to pay with Venmo at checkout.
Overall, I thought the results were quite solid, considering that last year was a huge one for e-commerce sales and digital payments. To my mind, the results showed that the growth story here is still intact.
PayPal stock: my move now
Given that PayPal is still growing at a healthy rate, I’m looking at the recent share price weakness as a buying opportunity.
I believe PayPal is going to get much bigger in the years ahead as the e-commerce industry grows and the use of digital wallets become increasingly common. With 416m users worldwide, it seems well-placed to grow as financial services continue to become more digital. I think buying shares now, while the stock is out of favour, could turn out to be a good move in the long run.
Of course, with consumers returning to physical stores post Covid-19, near-term spending patterns are hard to predict. So we could be in for a bumpy few quarters ahead. The stock’s forward-looking P/E ratio of 44 also adds a bit of risk to the investment case. If future growth is disappointing, the share price could fall further.
However, I’m looking to the long-term here. And I think in the long run, this FinTech company is likely to get much bigger.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Amazon and PayPal Holdings. The Motley Fool UK has recommended Amazon and PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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