PayPal stock may be undervalued with growth potential

PayPal, once a star during the pandemic, saw its stock price hit a high of about $309 per share in July 2021. Nearly four years later, the stock is now around $67. There are clear reasons for this decline. During the pandemic, PayPal's business thrived as many turned to online shopping and digital money transfers. In early 2021, PayPal reported a 50% year-over-year increase in total payment volume and nearly doubled its earnings per share. However, after the pandemic, growth stalled, with active accounts only rising from 392 million to about 430 million. Recently, PayPal underwent significant changes in leadership. New CEO Alex Chriss is focusing on growth once again. Over the past year, some metrics have improved, although PayPal lost active accounts in 2023. Chriss initiated several new strategies in 2024, including launching an advertising platform and introducing a competitive cash-back debit card. At a recent investor event, PayPal's management shared their plans for boosting growth. One key area is Venmo, which they believe could generate $2 billion in revenue by 2027 through new partnerships with retailers. They also see great potential in the offline payment market, which could represent a $200 billion opportunity. PayPal aims to deepen customer relationships and improve its overall platform. The management envisions achieving over 20% earnings growth in the future. Currently, the stock seems undervalued at 13.3 times future earnings estimates. PayPal expects to generate about $6 billion in free cash flow this year, which will mainly be used for buying back shares. If management meets its growth targets, the stock could prove to be a very good investment at this price.